Bankruptcy is basically a legal procedure, which allows debtors to reorganize and reduce their debts under the supervision of the bankruptcy court. Once you embark on this process, the automatic stay will protect you from creditors till you clear your personal liability and receive your discharge.
You are advised to file for bankruptcy if you are struggling to meet your financial obligations. You should similarly file for bankruptcy if you are faced with the possibility of having your property repossessed. Contrary to public belief, filing for bankruptcy doesn’t mean that you are broke. It is simply a strategy that helps you eliminate your debts by giving you additional time to pay up.
Automatic Stay and Bankruptcy Discharge
As soon as your bankruptcy claim is filed, an automatic stay will go into effect. This is a decree that shields you from creditors by preventing them from collecting their debts from you. The automatic stay similarly prohibits all forms of collection activities such as wage garnishments, creditor calls, and lawsuits.
Once the bankruptcy process is successfully completed, you will be discharged from your debts. The discharge completely wipes out your obligation to pay your debts and any personal liability that you might have. Nonetheless, you should keep in mind that not all types of debt are dischargeable through bankruptcy.
Chapter 7 and Chapter 13 Bankruptcy
You can either choose to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Chapter 7 bankruptcy is specially designed to help clear general unsecured loans. More often than less, it lasts for three months. Chapter 7 bankruptcy is sometimes perceived to help speed up liquidation processes because a bankruptcy trustee appointed by the court is legally allowed to sell a debtor’s nonexempt assets. Even so, there are certain legal provisions that protect a certain portion of debtor’s property from liquidation.
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy doesn’t allow the sale of debtors’ nonexempt property. Instead, it allows them to propose a payment plan in exchange of keeping their assets. Typically, such debt repayment plans last between three to five years. This explains why Chapter 13 bankruptcy is sometimes known as reorganization bankruptcy. In case you are behind on car loan or mortgage repayments, you should consider filing for Chapter 13 bankruptcy so that you can reorganize your finances.