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Bankruptcy Basics

No one plans to go bankrupt, but sometimes circumstances come about that set you back in such a way that bankruptcy may be your best option to resolve the debt situation you find yourself in and to be able to move on with your life.

What is bankruptcy?  Who is it for? (I.e. when should you file?)

In essence, bankruptcy is a process that you can undertake if your debt load becomes overwhelming and impossible for you to manage.

All your assets, except those protected by law (such as your home and personal effects) are handed over to the Bankruptcy Court. These assets are then sold off in order to pay your creditors and outstanding debts. Creditors rarely receive more than a small percentage of what you originally owed. Once your creditors are paid, your debts are considered “discharged” and you are no longer responsible for them.

Often, because so many things are protected from bankruptcy court, you lose little or nothing, but some debts cannot be discharged including student loan debts, alimony, child support payments, and most taxes.

What types of bankruptcy are there?

There are several types of bankruptcy and each kind is addressed in a separate “chapter” of the Federal Bankruptcy Act. That's why you'll often hear bankruptcy referred to as a “Chapter 7” bankruptcy, or a “Chapter 13” bankruptcy. The different chapter numbers refer to a different kind of bankruptcy. The most common kind of bankruptcy that an individual files under is a Chapter 7 bankruptcy, also known as straight bankruptcy or liquidation bankruptcy.

More on Chapter 7 Bankruptcy
More on Chapter 13 Bankruptcy

How often can you file for bankruptcy?

You can file for bankruptcy every seven years, but a debt that wasn't discharged in your first filing will not be discharged if you file again later.

What are the effects of bankruptcy on your job?

There is no reason for your employer to learn of your bankruptcy, except if your wages have been garnished. When you file for bankruptcy, garnishment stops, To do this, your employer will have to be informed. Otherwise, bankruptcy is a matter between you and your creditors.

What are the effects of bankruptcy on your credit?

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