An Explanation of Bankruptcy and Bankruptcy Options

Bankruptcy is an option for a person who is struggling with debt.  Bankruptcy is the legal process that allows a debtor to eliminate their debt or reorganize their debts so they can be free of them.  There are many regulations to filing bankruptcy of which debtors should be aware.

The most common forms of bankruptcy are Chapter 7 and Chapter 11.  A Chapter 7 bankruptcy is when a debtor's debts are completely wiped out.  The debtor has to liquefy- turn their assets into money- their assets that are not exempt.  A Chapter 11 bankruptcy is when a debtor makes  plan of repayment to their creditors.  This allows a debtor to avoid legal prosecution and helps to protect their assets.

The choice between filing Chapter 7 or Chapter 11 is mainly going to depend on the assets a debtor has and their income.  The new bankruptcy laws force some people to file a Chapter 11 if they have sufficient income to be able to pay back debt.  However, most bankruptcies filed still fall under Chapter 7.

Also under the new bankruptcy laws debtors are required to meet credit counseling guidelines.  They must attend an approved credit counseling course before filing and then attend another course before their bankruptcy can be discharged.

In a Chapter 7 bankruptcy once the debtor has filed with court they have to turn over any assets that are not exempt.  Exempt assets are determined by the exemptions allowed by the persons state of residency.  Common exemptions include a home, vehicle and personal property.  Assets turned over are then sold and the money is then given to pay off the debtors debts. 

Any debts not paid off through the liquidation of assets is then wiped clean when the bankruptcy is finalized or discharged.

In a Chapter 11 bankruptcy the debtor does not liquefy assets, instead they create a repayment plan.  This plan is basically a budget they must abide by to pay off their creditors.  The point of this type of bankruptcy is to seek protection under bankruptcy so that creditors can not take them to court, garnish their wages or take their assets.

Bankruptcy is a very formal proceeding and is a very big step.  It does cause damage to a persons credit record, but for some people it is the only way they can get control over their debts.

 For more information, check out this website on Bad Credit Debt Consolidation