Bankruptcy is a legal action that helps a person or business to get a new secured financial future if he/she cannot pay his/her bills and loans. It has to be filed in federal court and by a bankruptcy attorney. The two types of bankruptcy under which one can file are discussed below in brief.
Chapter 7 bankruptcy –
It is also known as straight bankruptcy. Here, all your dischargeable debts are discharged against your non-exempt property. Exempt properties are those that are necessary to start a new life. Almost all your assets come under exempt properties still it is better if you consult a good bankruptcy attorney before finalizing anything.
When filing for Chapter 7 bankruptcy, it puts an Automatic Stay over all your debts, that is, it stops all efforts of the creditors to collect money from you.
There are rights that protect you if you file under chapter 7. The rights are-
- Your creditors cannot contact you during this period nor can they pressurize you into paying them money, if they are doing so contact your legal counsel immediately.
- You can keep almost all your assets except if your attorney says the opposite.
It is different from chapter 7 bankruptcy, where the debtor will curate a plan showing how will you pay off your debts, instead of the court just discharging your debts. It lasts for 3 – 5 years.
It is the best option if you have a lot of assets and don’t want to lose them, or when you know that if you get the time you can catch up with your debt and especially if you have a regular income.
What are secured creditors?
Creditors when giving a loan keep collateral against the loan, for example, if you take a home loan, then the secured creditor will have some claim or repossession if you don’t pay the interest on time.
Others who don’t take collateral against giving the loan are called unsecured creditors. When paying to creditors in bankruptcy, the secured creditors are prioritized and if the funds are left then the court or the debtor pays it to the unsecured creditors.
What is discharge?
Order of Discharge is given by the court that states that all your debts are excused except some types like alimony or child support. If everything goes normally, then the court at the end gives you this order of discharge. After getting discharged no creditor can ask you for money if it is discharged. If it is done contact your legal counsel immediately.
The court might refuse to discharge your debt but it is very rare. It is only done when you have done something wrong, like lying to the creditor about a property you have or misguiding the court. you should be very careful about these things.
Before filing for bankruptcy be informed about what you are doing, choose a legal counsel that can help you, and move forward cautiously. there is nothing to be ashamed of for filing for bankruptcy.