What is Bankruptcy?

Bankruptcy is a federal courts process allowing you to tackle your debts while being protected from creditors via the bankruptcy court. Essentially, bankruptcy is designed to help you eliminate your debts or repay them over time, depending on what your financial situation is and what your goals are.

The concept of U.S. bankruptcy originated in the Constitution and the bankruptcy process has since helped millions of Americans burdened with crushing debt. You are provided with different bankruptcy optionswhen seeking to resolve your financial problems. You have two main options and each is intended to help consumers in financial crisis, but the solutions offered are very different.

Two Types of Bankruptcy:

Chapter 7 bankruptcy, or liquidation, is more common. A Chapter 7 bankruptcy can eliminate a lot of unsecured debt (credit cards, medical bills, old utility bills, unsecured personal loans, etc.), and can generally be completed within just a few months. In a Chapter 7 bankruptcy case, the trustee can liquidate (sell) non-exempt assets to pay creditors, but most people who file for Chapter 7 bankruptcy don't have any non-exempt assets, and so are able to keep their property while eliminating unsecured debts.

Chapter 13 bankruptcy is often the solution of choice for people who have a lot of secured debt, such as car loans and mortgages, and want to keep the property that serves as security for the loans. In a Chapter 13 case, the debtor enters into a repayment plan that allows 3-5 years to catch up on past due payments.

What is the Automatic Stay?

A court order, the automatic stay provides relief by telling creditors that you are hands-off. In other words, once you file bankruptcy and the automatic stay is entered, creditors cannot contact you about your debts through threatening phone calls or other intimidating means.