Understanding Bankruptcy

Sometimes your financial situation may get too difficult to handle. Unmanageable debt, and other financial struggles may lead you having to consider options like bankruptcy. This is a way that you can manage difficult debt in an organized way.

Why File for Bankruptcy?

The reason that people file for bankruptcy is so that they can receive a discharge. According to Investopedia, a bankruptcy discharge is “a permanent court order that releases a debtor from personal liability for certain types of debts.” When this occurs, the court will clear the debtor of any responsibility to repay their debts, and creditors cannot follow up on these debts. While bankruptcy is a good option to look into, it is not for every type of debt. Often times, debts like tax debts, and support debts are not eligible to be discharged by the court.

Different Types of Bankruptcy

Bankruptcy types are known as chapters. There are six chapters:

- Chapter 7 liquidation:

This is one of the more popular bankruptcy chapters for individuals. This calls for the sale of a debtor’s nonexempt property. The money from the sale is then distributed to the individual’s creditors. This chapter is best for individuals who do not have a consistent source of income and are not eligible or do not want to use Chapter 13's payment plan option.

- Chapter 9:

This chapter is applies to municipalities or other subdivisions like hospitals, school districts, airports, etc.

- Chapter 11:

This is used when businesses need to manage complicated debt structures.

- Chapter 12:

Used by family farmers and/or fishermen.

- Chapter 13 bankruptcy:

This is another popular option amongst individuals. This allows a person in debt with a consistent income have the ability to repay a portion of their debt over a set period of time.

- Chapter 15:

Foreign debtors that are usually companies opt for this chapter. This will happen if bankruptcy or receivership actions are pending in a foreign country.

When you file for bankruptcy it may not be as clear as you think. Filing for bankruptcy can have long-term consequences both legally and financially. You will want to consult a bankruptcy lawyer. If you aren’t able to afford traditional legal fees, then you can see if free consultations with lawyers are available.

What is a Bankruptcy Trustee?

In a majority of bankruptcy cases, a trustee is assigned automatically when the case is filed. These trustees are responsible for administering the bankruptcy case by reviewing the debtor documentation. The trustee is also responsible for catching any fraudulence.

Understanding Bankruptcy Fraud

Due to the fact that bankruptcy is apart of the federal system that is codified by Congress into the United States Bankruptcy Code, bankruptcy fraud is classified under the territory of the federal government. This means that any sort of fraudulent bankruptcy activity is considered a federal crime. You then could end up in jail and lose your discharge.

Overall

Filing for bankruptcy may be a good option for your situation if your debt is out of control. Take your time to research and sit down with a bankruptcy lawyer to see if this would be an option that you can consider.