Bankruptcy is a federal court procedure that allows people to get rid of debt and repay creditors. The intent of bankruptcy is to give people a fresh start.
Bankruptcy is not a magic pass that allows you to erase your entire past, but it can make your present easier and your future possible.
Bankruptcy can ease some burdens
After filing for bankruptcy, bankruptcy court will protect you during the proceedings. The court will issue an automatic stay order that prevents many things from going forward. It will stop harassment from creditors and collections agents. It will temporarily stop foreclosures, repossessions or eviction. It will even stop wage garnishment.
Bankruptcy may erase some burdens
Bankruptcy can wipe out unsecured credit card debt. It can also wipe out secured debts such as a mortgage, or a car payment, but you will have to give up the property. Bankruptcy can erase medical bills and unpaid utility bills. There are even some lawsuit judgments bankruptcy can wipe out.
Bankruptcy cannot erase all burdens
While bankruptcy intends to give people a chance to start over, some debts will remain yours to pay. Student loans, income taxes owed, court ordered payments of child support or alimony, and court fines or penalties are exempt from the powers of bankruptcy.
There are two types of bankruptcy open to individuals. Which type of bankruptcy you file for is dependent on your debt, income and property. Chapter 7 bankruptcy involves the liquidation of your assets in order to repay debts. Chapter 13 bankruptcy involves working with the court to design a plan to repay your debts and creditors over a fixed number of years based on your income and the amount owed.