Bankruptcy Protection: The Basics

Filing for bankruptcy should be a final resort for individuals who have fallen behind on their debts and cannot continue paying their creditors. Here are some basic instructions to think about before you consider filing.

Bankruptcy can help debtors in three ways. Bankruptcy can help liquidate all non-exempt assets to repay creditors. It can be used to set up a repayment plan for debts. Bankruptcy protection prevents creditors or collections agencies from filing a lawsuit or collecting exempted assets. If people are honest about their assets and are diligent with bankruptcy filings they will have certain debts discharged and get the fresh start they need to move forward.

Should You Go Bankrupt?


Look over all of your options before you file for bankruptcy in your Federal district court. Find a bankruptcy lawyer or legal service that offers free (pro bono) or discounted services depending on your situation. Legal representation can help you choose the right bankruptcy filing, determine your exempted assets or help you negotiate an out-of-court settlement with creditors.


Most importantly, use a credit counseling service BEFORE you file for bankruptcy. These services can be found online and from a list provided by your district court. It is mandatory that all individuals receive this counseling if they choose to file for bankruptcy. The services will help you determine whether bankruptcy protection is right for you.


Examine Your Alternatives


Bankruptcy isn’t the only way to get out of debt. It can leave a nasty stain on your credit report that can take up to a decade to recover from.


A debtor may be able to reach an out-of-court settlement to reduce the debt schedule or agree to a lump-sum payment. Or the debtor can sell off assets themselves to repay debts instead of being subjected to total liquidation. Consumer credit counseling services will also offer you alternatives to bankruptcy.



Understand the Consequences of Bankruptcy


There are some types of debt that are not eligible for discharge: child support, alimony payments, some federal taxes, most student loans and all employer withholding taxes. Also, credit card debt that is accrued with the intent to not repay it is ineligible. The same goes for loans that are obtained through fraudulent financial information.


Bankruptcy also doesn’t wipe the slate totally clean. Debtors will still be expected to make their current car payments and mortgage payments in a timely manner. In some cases, some individuals will still have to make good on their existing debts even if some of these assets have been liquidated.


If debtors are fraudulent through undocumented asset transfers, making false statements or disobeying court instructions, they can be held liable for criminal penalties, resulting in jail timeheavy fines or both. There is no way to game the system or get away with bankruptcy fraud.


For more information on bankruptcy in the United States, see

Also, check with your state law for any additional bankruptcy regulations required by your state.


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