Bankruptcy is often misunderstood and can be a confusing process to work your way through which is why we’d like to provide you with a detailed overview of what bankruptcy actually is and the various options that are available to you. We know that filing for bankruptcy is a difficult decision to make and one that often carries with it a large amount of stress and uncertainty. C. Rainford Law can help you out with consumer credit related counseling and guide you through the legal proceedings.

What is bankruptcy?
Simply put, bankruptcy is defined as the inability to discharge all of your debts as they become due. It is a legal proceeding that’s guided by federal law that is designed to address situations where a debtor (which can be either an individual or a business) has accumulated obligations so great that he or she is unable to pay them off.

What happens when you file?
Now that you have a good grasp on what it actually is, let’s talk about what happens when you file for bankruptcy. Laws are designed in such a way that the debtor’s assets are distributed as equitably as possible amongst his or her creditors. Most of the time, filing for bankruptcy also frees a debtor from any further liability (although there are exceptions). Proceedings for bankruptcy can be initiated by the debtor voluntarily or, in some cases, may be forced by creditors.

What are the types of bankruptcy?
It can be unclear what each type of bankruptcy entails, but once it is broken down it becomes much easier to think about which option might be best for you and will work well for your situation.

Chapter 7 Bankruptcy is the chapter of bankruptcy code that sets forth the provisions relating to liquidation of a debtor’s assets. In a Chapter 7 filing, a trustee is appointed to collect and liquidate assets and distribute the proceeds to creditors in accordance with set priorities.

Chapter 11 Bankruptcy allows a business to reorganize and refinance to be able to prevent final insolvency; often there is no trustee, but a “debtor in possession” and considerable time to present a plan of reorganization. This option can work, but it is usually a bottomless pit of debt and delay which often requires creditors to take a small percentage of what is owed to them.

Chapter 13 Bankruptcy is the wage earners’ reorganization chapter that allows a wage earner (individual debtor) to propose a plan to pay his or her creditors in full or in part. It is different from Chapter 11 in that a plan is proposed at the beginning of the case and establishes a repayment structure over three to five years which consists of the debtor’s available income.

We hope we’ve given you a better idea of what bankruptcy means and which route may be ideal for you. Of course if you need more information, feel free to contact us today for a free consultation regarding your legal bankruptcy concerns and we’ll happy to answer any questions that you may have.