Bankruptcy: An Overview

What is bankruptcy? The basic definition of bankruptcy is a legal process which is undertaken by a debtor (an individual or business entity) who is insolvent. The debtor is unable to pay his or her debts and thus places his or her financial affairs under the control of the bankruptcy court. In some cases, this means a liquidation of assets and property in order to pay creditors. It may also mean a special payment plan in order to help the debtor keep his or her assets.

There are a number of important topics to consider in relation to the overall subject of bankruptcy:

Do I need a lawyer?
If you are an individual filing for bankruptcy, you are not required to hire a lawyer. You may experience a number of benefits by involving a legal professional, however. Bankruptcy is a legal process. It is also complicated. Having a competent attorney who can guide you through can help ensure that your petition and all relevant paperwork are properly handled and that your rights are protected every step of the way.

Types of Bankruptcy
Depending on the specific situation, a debtor may file under a specific "chapter" of the bankruptcy code. The most common types of bankruptcy are Chapter 7 and Chapter 13, though in some cases a business may file under Chapter 11 or a municipality may file under Chapter 9. Choosing the right chapter is one of the most important decisions you will make when filing for bankruptcy protection.

Common Bankruptcy Myths
Due to the complex nature of the subject, there are a number of myths that you may have heard about bankruptcy. For example, you may have heard that you will lose all of your property. Though some property may be affected under Chapter 7, much or all of it may be protected by bankruptcy exemptions. This is just one of the many bankruptcy myths we are committed to dispelling.

Potential Benefits of Bankruptcy
Determining the specific benefits that you may experience in filing for bankruptcy is one of the most important things that an attorney can help you with. This will aid you in making the right choice about filing. For example, bankruptcy may have the power to stop creditor contact, wage garnishment and even foreclosure.

Is bankruptcy the right choice?
Deciding whether to file for bankruptcy is a choice you should only make once you have all the applicable information on the matter. It is an aggressive form of debt relief that will have positive and negative repercussions. That is why we recommend discussing your case and concerns with a skilled lawyer.

Which chapter is right for me?
Depending on whether you are an individual or are filing on behalf of a business entity, your income level and a number of other factors, a specific type of bankruptcy may be right for you. Because there is more than one option to consider, it is essential that you file your petition only after getting all the information on the subject.

What Happens When You File
When you file your bankruptcy petition, the court will issue a temporary injunction that is typically referred to as an "automatic stay". This means that any and all debt collection efforts against you must immediately cease, including wage garnishment, creditor and debt collector contact, repossession, collections lawsuits and even foreclosure.

How Bankruptcy Affects Your Credit
Bankruptcy will have a negative impact on your credit score – this is a key factor to consider if you are interested in filing. The length of time bankruptcy will remain on your credit report and the number of points your credit score will drop will vary depending on the type of bankruptcy as well as your particular financial situation.

Alternatives to Bankruptcy
Bankruptcy is not necessarily the right answer for every debtor. There are alternatives you may wish to consider, such as borrowing money from a friend or family member, debt settlement, debt consolidation, or, in the face of foreclosure, a deed in lieu or loan modification. A good attorney should be willing to review your alternatives with you so you can make a decision that is truly in your best interests.

If you would like to learn more about bankruptcy or your other options in addressing overwhelming debt, foreclosure or creditor harassment, we welcome you to visit our Bankruptcy Information Center or to use our directory to find a local bankruptcy lawyer who may be able to assist you.

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