What exactly is bankruptcy?
Bankruptcy is a federal court process designed to help consumers and businesses entirely eliminate their debts or repay them during a set period of time under the protection of the bankruptcy court. There are three basic types of bankruptcy cases: A Chapter 7 liquidation, Chapter 13 "wage earner's bankruptcy," and Chapter 11 business reorganization.

Chapter 7 eliminates most of an individual's debts by selling off property and other assets using the proceeds to pay off as much of the outstanding debts as possible. Sometimes, certain effects can be saved from sale. "Tools of one's trade," limited equity in a car, sometimes a house, as well as a few personal things may be saved. Businesses would be completely liquidated in this case.

Chapter 13 bankruptcies may be used by an individual or by a sole proprietorship business that has a regular income, to pay off a large part of a debt or to pay them off completely using a payment plan over a specified period of time. This form of bankruptcy is often used by debtors who want to save their house or other real property from foreclosure. Individuals may also choose Chapter 13 as opposed to Chapter 7 because of equity in their assets. Many creditors prefer hearing about a Chapter 13 over a Chapter 7 because they would expect to get more of the debt owed to them through Chapter 13. A downside of Chapter 13 is that the debt could haunt the debtor for years and years.

Chapter 11 is used by businesses and high net worth individuals to reorganize financial affairs while continuing to own, manage, and operate its property.

When filing any chapter of bankruptcy, "automatic stay" goes into effect. This means that, because you are filing for bankruptcy, the federal bankruptcy court prevents creditors from calling, sending mail or employing any other means to collect their debt from you. This is helpful because you are then free to begin repaying or eliminating your debts without being bothered by creditors.

A common concern is that by filing bankruptcy, one's home or apartment will be taken. This does happen, but bankruptcy as an institution is not designed to take your home from you. Certain situations that our office can explain to you require that you be evicted or that your house get repossessed; however, this does not happen as often as one would think. If you would like more information, contact our office. We'll be happy to answer any questions you may have.