What is Bankruptcy?
Bankruptcy is a federal court proceeding designed to help consumers and businesses eliminate debts or repay all or portions of them while under the protection of the bankruptcy court.
What types of bankruptcy proceedings are there for consumers and small businesses?
There are a couple of different kinds of bankruptcies available to consumers and small businesses. These can generally be described as "liquidation" (Chapter 7) or "reorganization" (Chapter 13).
Chapter 7: Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. It is referred to as a liquidation because assets in excess of what you are allowed to keep (exemptions) can be sold to pay off a portion of your debts. Do not panic however. In most cases, debtors don’t have anything over and above the allowed exemptions. These cases are referred to as “no-asset” cases and no actual liquidation occurs.
Attorney Stephen H. Kim 831-221-5022
Chapter 13: Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You reorganize your debts repaying some debts in full; and repaying others only partially or not at all, depending on what you can afford. There are many more tools available to debtors filing Chapter 13 bankruptcy, so it is important to consult with an experienced attorney to evaluate which type of bankruptcy is best for your situation.
Other Information
The Automatic Stay: When you file either kind of bankruptcy, a court order called an "automatic stay" goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections. All lawsuits, foreclosures, phone calls, etc. must stop if related to collecting debts owed prior to when you filed for bankruptcy protection.
What types of debts cannot be wiped out in bankruptcy?: Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy. Again, an experienced attorney will ask the right kinds of questions to find out if you owe debts that will survive the bankruptcy process.