Bankruptcy Basics - Part 1: Introduction

Introduction

This tutorial provides a comprehensive overview of bankruptcy, including what it is, how it works, and the options available for individuals facing financial difficulties. Understanding these basics can help you make informed decisions if you are considering bankruptcy as a way to manage your debts.

Step 1: Understand Bankruptcy

• Bankruptcy is a legal process designed to assist individuals who cannot pay their debts.
• By filing for bankruptcy, you may be able to:
  • Discharge (eliminate) most, if not all, of your debts.
  • Retain most of your property.
  • Obtain more time to pay your bills if you have a steady income.
• The person filing for bankruptcy is referred to as a debtor.

Step 2: Know the Types of Bankruptcy

• Individuals typically file under two main types of bankruptcy:
  • Chapter 7: Involves liquidation of non-exempt assets to pay creditors. Most debts can be discharged.
  • Chapter 13: Allows individuals to reorganize their debts and create a repayment plan over three to five years.

Step 3: Filing for Bankruptcy

• You can file for bankruptcy alone or jointly with your spouse.
• Once you file, an automatic stay goes into effect, preventing creditors from collecting debts or suing you for judgments.
• Creditors cannot claim your future income or assets after the filing.

Step 4: Explore Alternatives to Bankruptcy

• Bankruptcy isn't the only option for managing debt. Consider these alternatives:
  • Out-of-Court Settlements: Negotiate directly with creditors to reduce your debts.
  • Credit Counseling: Get assistance from a consumer credit counseling service to create a debt management plan.
  • Debt Adjustments: Propose a reduction in your monthly payments to creditors.
  • Asset Liquidation: Sell assets to pay off debts or borrow against them.

Step 5: Seek Legal Help

• If you decide to pursue bankruptcy, it’s advisable to consult with a qualified attorney who specializes in bankruptcy law.
• An attorney can provide guidance on which type of bankruptcy to file and help navigate the legal process.

Conclusion

Understanding the basics of bankruptcy can empower you to make informed decisions regarding your financial future. If you're considering bankruptcy, evaluate all your options, potentially seek alternatives, and consult with a legal professional to ensure you choose the best path for your situation. For more information, visit uscourts.gov/bankruptcy.