What is a Debtor?
Simply put, a debtor is a person who owes someone else money. A creditor is the person who is owed money.
What is Bankruptcy?
Bankruptcy is the legal way for debtors to disburden themselves of the debts that they owe.
Who can file for bankruptcy?
Any person can file for bankruptcy protection from creditors. In addition, most businesses and charitable organizations may also qualify for bankruptcy protection.
What happens to my bills after I file for bankruptcy?
As soon as your case is officially filed with the court, creditors are legally prevented from attempting to collect on any debt owed to them by you. This means that creditors must stop all collection activity, including: telephone calls, harassing letters, repossessions, foreclosures, lawsuits, and wage garnishments. Once the case is concluded, the court may enter a "discharge". A discharge is a total release of a debtor from any further personal liability for his or her pre-bankruptcy debts.
What is the difference between Chapter 7, 11, and 13 bankruptcy?
Chapter 7 is a complete bankruptcy or "straight" bankruptcy. All or nearly all the debtor's property is liquidated, and at the conclusion of the bankruptcy proceeding, the debtor gets a fresh start. A Chapter 7 bankruptcy stays on your credit report for ten years.
Chapter 7 bankruptcy is available to almost any individual debtor, so long as the court hasn't determined that the debtor is trying to abuse the system by filing. In most courts, that includes a determination of whether the debtor has enough income to pay his or her debts and is simply trying to use Chapter 7 to improve his or her economic position.
Chapter 11 is usually available to businesses (and people that have debts of more than $1 million) and they may use a form of restructuring under Chapter 11. A Chapter 11 bankruptcy stays on the credit report of a person for ten years. There's no law about how long it stays on a business's credit report, but most credit reporting agencies use ten years.
Chapter 13 is in the nature of a restructuring. The debtor doesn't escape the debt entirely but is allowed to pay less of it, pay it more slowly, or some combination of the two. The debtor typically gets to keep some property so income can continue to allow for payback. A Chapter 13 bankruptcy stays on your credit report for seven years.
Chapter 13 bankruptcy is not as freely available as is Chapter 7. The debtor must have "stable and regular" income, unsecured debts of less than $250,000, and secured debts of less than $750,000. Income can be stable and regular even if it's not earned income. For example, alimony, child support, entrepreneurial income, and public assistance all have been found to qualify as stable and regular income in connection with a Chapter 13 bankruptcy.
Will my credit rating be affected by filing bankruptcy?
Yes. However, most people are able to rebuild their credit within a few years. If you are currently thinking about bankruptcy, then it is likely that your current credit rating has already been affected. A discharge of your current debt may provide the opportunity to rebuild your credit with steady, regular payments on a new account.
Will I lose my house, car, and other personal property?
Those who files for bankruptcy may excuse certain items from the bankruptcy. In most cases, this lets them keep their home, car, furniture and your household items. Different states have different conditions for exemptions.
