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Bankruptcy Resource Guide

What is Bankruptcy?

Bankruptcy helps individuals and businesses repay their debts under the protection of the Federal Bankruptcy Court(Chapter 13 Bankruptcy) or removes their debts altogether(Chapter 7 Bankruptcy). As soon as you file for bankruptcy your creditors are prohibited from taking action to collect debt without approval from the court.

The two different types of bankruptcy are liquidation or reorganization:

Reorganization Bankruptcy - Chapter 11, 12, 13

In a reorganization bankruptcy, you will file a repayment proposal with the court. Sometimes debts are required to be repaid in full, and some are repaid as a percentage of the debt, and some are not repaid at all.

Debts that cannot be included are:

child support
personal injury
student loans
fines for breaking the law
tax debts

The court will place restrictions on how you can spend your money. They will take a fixed amount from your wages and use this to make payments to your creditors.

Creditors will still grant you credit if you make it through the end of the bankruptcy repayment plan, even though it stays on your credit record for six years.

Liquidation Bankruptcy - Chapter 7

You give your personal property to the court in a liquidation bankruptcy. The court then sells it and uses the money to pay off your debts(or as much of it as possible). Creditors are no longer allowed to come to you looking for payment. But, the bankruptcy stays on your credit record for 10 years.

Filing for bankruptcy is a serious matter, and sometimes it the only way out of financial difficulties caused by job loss, medical bills, or other serious problems.

Preventing Bankruptcy

Practice money management by avoiding impulse spending, only using credit cards if you have the money to pay it off, stay on a realistic budget, don't buy a house you cannot afford, make sure you have insurance for medical, homeowners, automobile, etc.

If you are already behind on your bills, contact your creditors. Usually creditors will work with you since getting some type of payment is better than nothing at all. Suggest a temporary payment plan or a waiver of late fees or penalties.