If you are feeling overwhelmed by debts that you cannot pay, you are probably wondering what is bankruptcy. You have probably been looking up bankruptcy information on the internet.

Bankruptcy is a way to legally wipe out your debts so that you no longer have to pay your creditors. This is referred to as discharging debts. While discharging your debts sounds appealing, filing for bankruptcy should not be taken lightly. Declaring bankruptcy can have a major impact on your life.

There are different types of bankruptcy. While one type allows you to discharge your debts, others types allow you to restructure your debts. When you restructure your debts, you still have to pay most of your creditors.

When you have questions about what is bankruptcy, you should know that the procedure is handled by federal courts. You have to complete the necessary paperwork telling the court that you are unable to meet your financial obligations. If your case fits the bankruptcy rules, you will be able to file.

In regards to what is bankruptcy, know that bankruptcy rules are complicated. To find out how to file for bankruptcy, hire an experienced attorney to handle your case. A good attorney will make sure that your bankruptcy paperwork is in order. If you leave some debts off your paperwork, they will not be discharged and you will still have to pay those creditors.

Types of bankruptcy

When it comes to what is bankruptcy, there are three types of bankruptcy that are generally used by individuals: Chapter 7, Chapter 11 and Chapter 13.

Chapter 7 is the most common bankruptcy used by households. In this type of bankruptcy, the court sells your assets and gives the money to your creditors to pay your debts.

Most people filing for bankruptcy under Chapter 7 do not have many assets. If you file for Chapter 7 bankruptcy, you will be allowed to keep your clothes and furniture. You will likely be able to keep an old vehicle for which you do not owe any money. If you have expensive jewelry or other items, they may be sold to pay your creditors. If you have expensive items that you wish to keep, you probably should not file for Chapter 7 bankruptcy.

When you file for Chapter 7 bankruptcy, you are still obligated to pay certain debts. You will still be required to pay court ordered child support or alimony. You will also have to pay student loans.

You will lose your house because Chapter 7 does not stop foreclosure. However, if you file for bankruptcy, it can halt foreclosure for a few months. This allows you to save up money to move.

According to bankruptcy rules, you may not be eligible to file for Chapter 7 bankruptcy. If your median income is higher than your state’s median income, filing for Chapter 7 bankruptcy is not an option for you. However, there are other types of bankruptcy for which you may qualify.

Chapter 13 is a type of bankruptcy that may work for you. Most of your debts will not be discharged. Instead, your debts will be reorganized, and you will come up with a plan to pay them over a three to five year period. Credit card debts and medical bills are discharged with Chapter 13 bankruptcy.

When you file for this type of bankruptcy, you have to show the court that you are able to pay your debts if they are reorganized. The positive thing about Chapter 13 is that you will be allowed to keep your assets. You may be able to stop foreclosure and remain in your home.

Chapter 11 is a third type of bankruptcy that might be an option for you. This type of bankruptcy is mostly used for struggling businesses. However, it is sometimes used for individuals who have too much debt or assets to file for Chapter 13 bankruptcy. With Chapter 11, you are allowed to keep your assets, and you will be expected to pay most of the debt you owe.

Things to Consider Before Filing for Bankruptcy

When you are figuring out what is bankruptcy, be sure to look at the effects of filing for bankruptcy. Take your time to gather comprehensive and accurate bankruptcy information. If you do not understand the information, ask bankruptcy questions to someone who is knowledgeable on the subject.

A personal bankruptcy can have a huge negative impact on your life. It will dramatically lower your credit score, making it difficult to buy a home or car. You will be unable to get new credit. It takes up to ten years to get this negative information off your credit report.

If you have cosigners on any debts and file for bankruptcy, your cosigners may be required to pay your debts. This is something to consider before filing for bankruptcy.

Because of the effects of bankruptcy on your credit score and your cosigners, look at other options before filing.

If you are only experiencing a temporary financial problem but expect for things to improve soon, talk with your creditors. Maybe they will temporarily lower your payments or allow you to skip a few of them.

Consider getting a loan from family members or friends. This will allow you to pay your debts without filing for bankruptcy. Treat the loan like a regular business deal. Put information in writing regarding the loan and the payment plan.

The answer to what is bankruptcy is not a simple one and neither is the process. However, if your creditors will not work with you, and your family and friends cannot loan you money, your only choice is to file for bankruptcy.

While bankruptcy will have a harmful effect on your credit score, you will no longer be hounded by your creditors. You will not be struggling to make ends meet because you will have fewer bills to pay each month. This will give you a peace of mind, and over time, you will be able to reestablish good credit.