Curious About Bankruptcy? Understanding Some Important Points

As the cost of gas, groceries, and housing continues to climb, many American families are finding it increasingly difficult to stretch their income enough to cover all their bills. While some may be able to stay current on their expenses by taking actions like working a side job, sharing rides with a neighbor, and eating more rice and beans, others may find themselves already dealing with maxed-out credit cards and stacks of late notices.

For those who are struggling with a worsening financial situation, bankruptcy laws may be a source of help for those who meet the qualifications. If you are becoming curious about bankruptcy, here are some important points to consider.

Bankruptcy is a legal process

A bankruptcy filing is not a guarantee that debts will be forgiven. Instead, bankruptcies are filed in federal court and overseen by a federal judge. This judge will determine if a debtor meets the eligibility requirements of applicable bankruptcy laws and how debts may be discharged, if applicable. 

Once the bankruptcy filing is accepted, the debtor's case is usually handled by a qualified trustee. The trustee works with the debtor to monitor the case, collect payments, and report to the court on the debtor's progress. Should the debtor fail to meet their obligations, the trustee is taxed with requesting that the court dismiss the bankruptcy case. 

Types of bankruptcy filings

The three most common types of bankruptcy filings used by individuals are Chapter 7, Chapter 11, and Chapter 13. In a Chapter 7 bankruptcy filing, most of the debtor's assets are liquidated to repay their creditors. After all assets are liquidated, the remaining debt is typically discharged. 

Chapter 11 bankruptcy filings are used when debtors have a business or company that requires reorganization to restructure debts and make it possible for creditors to be repaid. A successful Chapter 11 bankruptcy filing can help a company or business remain in operation while working to pay creditors. 

The most commonly used bankruptcy filing is called Chapter 13. Sometimes referred to as the wage earner's plan, Chapter 13 bankruptcy filings allow debtors to keep many of their assets while also following a plan to repay their outstanding creditors over a period of time.

Filing for bankruptcy can have serious consequences that each debtor should consider. To learn more about filing for bankruptcy and get advice on what you might expect, make an appointment to meet with a reputable bankruptcy attorney in your area. 

Contact a law firm like Martinez Law Firm for more information.