Bankruptcy Actions
What is Bankruptcy?
Bankruptcy is designed for people caught in severe financial circumstances. It is a federal court process designed to help you eliminate your debts or repay them under the protection of the bankruptcy court. Most bankruptcy petitions are voluntary. Deciding whether to file bankruptcy is a complicated question. You may need to consult with an attorney, financial advisor or credit counselor to determine if you want to file bankruptcy.
Automatic Stay
Keep in mind that bankruptcy can be the means to a specific end. This is because after you file for bankruptcy, you have the protection of an "automatic stay." The automatic stay can, for example, immediately stop a foreclosure, an eviction, or wage garnishment. It can also stop debt collection, harassment and disconnection of utilities. The automatic stay can also prevent you from losing your driver's license because of liability for damages, unless the suspension has already occurred.
The automatic stay may provide a powerful reason for filing for bankruptcy. In most of the situations listed above, the automatic stay can buy you a few days or weeks in which to figure out your next move. If your primary motivation in filing bankruptcy is to gain the benefits of the automatic stay, you don't need to file all of your papers at once. You just need to file the two-page petition and a listing of your creditors. You have 15 days in which to file the rest of your papers. If you don't, your case will be dismissed.
Once you file, a creditor cannot take further action against you unless the creditor has permission from the bankruptcy court. The creditor will ask the bankruptcy court to remove (or "lift") the automatic stay if it is not serving its intended purpose. For example, if you file bankruptcy to stop a foreclosure, but you have no equity in the house and no income with which to make mortgage payments, the creditor is likely to ask the court for permission to proceed with the foreclosure. In a case like this, permission will probably be granted.
Two types of Bankruptcy
There are two main types of bankruptcy. Most individual debtors file for Chapter 7, which can also be described as "straight" bankruptcy or "liquidation." Under this plan all non-exempt assets are converted to cash (liquidated), and secured creditors may have the item they financed turned over to them (such as a house or car), unless the debtor reaffirms the debt with the court's approval prior to obtaining a discharge. Chapter 13, also called "reorganization," is an option for people with regular income and debts that are less than the limits allowed by law. When you complete a Chapter 13 plan, you have the satisfaction of keeping your assets, paying your creditors, and discharging your debts.
Bankruptcy is a serious step. If you choose to file Chapter 7 or Chapter 13, you will probably need to hire an attorney. Be sure to find an attorney who has experience handling the type of bankruptcy provision you plan to use.
For more information on Bankruptcy, click on these links: