Having financial problems? Thinking about bankruptcy, but not sure exactly what it is?

Here are the answers to some basic questions about the meaning and implications of bankruptcy.

We know: How Bankruptcy Works

What is bankruptcy?

Federal bankruptcy laws are designed to relieve a person from the pressures of excessive debt by providing a fresh start. By going through the legal procedure to declare bankruptcy, you can discharge some of your debt or you can win time to get back on your feet without harassment by creditors.

The decision to file bankruptcy should be carefully considered. It is a Federal court proceeding which can affect your legal right to keep or to use your property. Once you start a bankruptcy case, it may be impossible to stop.

What are the kinds of bankruptcy available to a person?

There are two main types of bankruptcy available to individuals. In Chapter 7 bankruptcy, your nonexempt assets may be sold to pay creditors while most of your debts are discharged. In Chapter 11 or Chapter 13 bankruptcy, you prepare a reorganization plan to pay off creditors in full or in part. Once you file a bankruptcy petition, an automatic stay prevents creditors from starting or continuing most legal proceedings against you.

What is Chapter 7 bankruptcy?

In Chapter 7 bankruptcy, your nonexempt property may be sold by an appointed trustee, who then makes partial payments to your creditors. You have the right to retain at least a partial interest in certain assets, such as your residence, car, clothing, household appliances and furnishings, life insurance, pensions and tools of your trade. Review Chapter 7 filing fees before making your decision.

What is Chapter 11 bankruptcy?

Chapter 11 bankruptcy is generally used to reorganize a business, although individuals are also eligible. This type of bankruptcy allows a business to continue operating while repaying creditors through a court-approved plan.

What is Chapter 13 bankruptcy?

If you have a regular income, Chapter 13 bankruptcy provides a method for repaying your debt over a period of time, according to a court-approved plan. The period of time allowed ranges from three to five years. Generally, only an individual with unsecured debts of less than $270,000 and secured debts of less than $800,000 is eligible. To file Chapter 13, you must file the appropriate schedules and petitions with the bankruptcy court and pay the filing fee.

How do I file for bankruptcy?

The first step in bankruptcy is to file a petition and schedules at the clerk's office of the federal bankruptcy court. In all but the most basic of cases, it is usually advisable to hire an attorney. Fees may range from $400 to $1,000 or more, depending on the complexity of your case. Be sure to discuss attorney fees up front and ask whether you can pay in installments.

Are there debts that can not be relieved by bankruptcy?

Certain debts cannot be discharged through a bankruptcy proceeding. These include certain taxes, alimony and child support, student loans and some property settlements.

How will bankruptcy affect my credit?

A bankruptcy filing generally will stay on your credit record for up to 10 years, but it need not be a permanent handicap. In fact, there are laws that forbid discrimination against persons who have declared bankruptcy. For example, you may not be denied a job, be denied or evicted from public housing or be denied a driver's license just because you filed for bankruptcy.