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Basically, bankruptcy is a process you enter into when you cannot pay your debts and it allows you to start afresh. Some debts would be discharged, while others will be reorganised. Both businesses and individuals may file for bankruptcy. Normally, creditors are compensated fairly. This process does not need to be a nightmare, but you do need to meet certain requirements. First, make a list of all debts and a list of all assets. This is normally done with a lawyer through the courts.

There are two types of assets; these are exempt and non-exempt. Exempt assets are those assets that do not need to be used in paying off debts, i.e. creditors cannot take them. Examples include: part equity in a home or vehicle, clothes, and other personal items. These assets do not include jewellery and expensive toys like a jet ski.

Following this, the court will assign a “trustee” who will use your non-exempt assets to pay off the debts.

There are two types of debts; these are secured debts and unsecured debts. A secured debt is described as a security interest; it is normally an asset bought on credit from a creditor. This type of debt takes priority over non-secured debt. If secured debt cannot be paid off, a creditor can repossess the asset and sell it to defray costs; a shortfall of debt thereafter is considered as unsecured now. It hasn’t disappeared, just changed its form.

At this time, the courts issue an “automatic stay” to protect you from further action by creditors, which allows one to avoid future foreclosures or repossessions and protection from litigation.


This is liquidation of assets and one is only allowed to keep those that are exempt. Non-exempt assets are auctioned and sold to whoever places the highest bid. Money made at the auction pays outstanding debts. Debts that cannot be repaid are discharged. However, some types of debts cannot be discharged; these include student loans, taxes and child support.


This means that one is attempting to regroup, recoup and get back on track. It is often referred to as “reorganization bankruptcy for individuals.” One files for Chapter 13 bankruptcy if one will repay debt over a 5-year period. However, there are conditions for being eligible for a Chapter 13 bankruptcy. One needs a source of income that is reliable and that will allow one to live and repay debt. One needs to have a set plan on how debt will be repaid, amounts and timeframe thereof. Once bankruptcy is approved, both debtors and creditors have to accept the court’s order.


This is often called businesses’ reorganization tool and it allows non-exempt property to be protected. It allows one to pay back debts in arrears and blocks foreclosures and repossessions.



Finding the right bankruptcy lawyer is a very important decision to make, this may be a breach of contract attorney. This will start the process and allow you to determine the appropriate course of action as well as discuss fees.


One would probably be stressed and feeling under pressure. Finding an experienced bankruptcy attorney is the best financial decision to make. This all takes courage and the obvious route is to try to work it out on your own, which is harder and lonelier. If one insists on doing it without an attorney, one should answer the following questions and if more than two describe you then you should definitely consult with a bankruptcy professional. The questions are:

  • Are people giving you threatening phone calls about debts?
  • Are you paying the minimum possible payment on credit cards?
  • Are you taking payday loans?
  • Are you asking loans from family and friends?
  • Are you behind on tax payments?
  • Are you about to lose your present job?
  • Are you ill and unable to be present at your job?
  • Are you gambling to make ends meet?
  • Are you getting foreclosure notices?
  • Are you in arrears for alimony or child support?

The answers to these questions indicate that filing for bankruptcy is your best solution, but it would be best to consult an attorney first.


A bankruptcy attorney would explain what one needs to consider; such as:

  • What happens afterwards
  • What life will be like
  • Ability to receive credit
  • Living on a budget
  • Starting again
  • Rebuilding credit

If these thoughts are on your mind, then consulting a bankruptcy attorney is a good decision to make. While a bankruptcy can be a dark cloud over the next ten years, the good part is that you can start to rebuild yourself as soon as the case is closed.


It is probably not good, but filing for bankruptcy may even improve your credit report as debts are eliminated. Creditors may view you as less of a credit risk now that you were bankrupt as you are not allowed to file for bankruptcy during the next six years. After about 2 years you could qualify for a home loan if you can make a down payment and have proof of income to service this debt. Car loans are available when existing debt is discharged. People will offer you credit immediately after your case closes. But one must remember to be careful as credit got one into trouble in the first place.