- Filing bankruptcy requires attending a court hearing.Justice image by MVit from Fotolia.com
Bankruptcy is a legal process that allows consumers to eliminate their debts under the protection of the court. The two main types of bankruptcy are chapter 7 and chapter 13, with chapter 7 being predominately used among individuals. As of March 2010, the U.S. Bankruptcy courts report 1.1 million chapter 7 bankruptcy filings in the previous 12-month period. Bankruptcy is a chance for individuals to start fresh with their finances but the elements of bankruptcy are complex. - Individuals who want to file for bankruptcy must addend a pre-bankruptcy counseling session. This session informs individuals of the steps to bankruptcy, the ramifications and the costs. This counseling session can help individuals who would like to try to avoid bankruptcy. The ramifications for bankruptcy include a lowered-credit score, the bankruptcy filing appearing for 10 years on your credit report and the resulting difficulty getting new credit.
- An attorney needs to file the legal bankruptcy papers. Individuals and businesses should look for an experienced bankruptcy lawyer. Individuals and businesses must pay a fee upfront to secure the attorney's services. This can be difficult when finances are already in such disarray, but lawyers, especially in business bankruptcies, always receive profitable compensation for their services.
- Chapter 7 bankruptcy liquidates assets and eliminates the remaining debt. Individuals file Chapter 7 most frequently, but businesses can choose to file Chapter 7 bankruptcy. The time-line for Chapter 7 bankruptcy is three to six months.
Chapter 13 bankruptcy reorganizes the debt and offers a chance for repayment. Individuals who make enough money to pay back their debt can file chapter 13, businesses file this type of bankruptcy so they can continue running their business through the bankruptcy process.
Chapter 11 bankruptcy is the type of protection most often sought by large companies and publicly traded corporations. - The attorney will file official bankruptcy papers in the federal court district in which the individual resides or the business is located. The filing will include all unsecured debt which the individual or business wishes to eliminate through the process of bankruptcy.
- All creditors and the individual or business filing bankruptcy have the right to be present at a court hearing. If assets are available, the court will ask for them to be liquidated to pay creditors. The creditors will argue why their past due bill should be paid with those liquidated assets.
- A liquidation of assets takes place, and the court enters into the final bankruptcy judgment, and the individual or business is discharged from paying most debts. This means that the creditors are no longer able to ask for repayment and must write off the remaining amount of money owed to them. Some debts are not included in bankruptcy filings, such as student loans, and those debts will remain the responsibility of the individual even after bankruptcy.
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