Bankruptcy is a Court procedure which, once completed, allows you to avoid paying all or part of your debts, depending upon your financial situation. Depending on the type of bankruptcy you file, there may be a requirement to pay some money to creditors or to liquidate some assets before you can be freed (or "discharged") from your debts.

On October 17th, 2005 the new bankruptcy reform law went into affect. The new bankruptcy law requires more from debtors, including pre-filing consultations with an approved consumer credit counseling service in an attempt to force consumers to pay their debts outside of bankruptcy. Additionally, in order to file bankruptcy, a debtor needs certification from that credit counseling agency.

An income-based "means-test" has also been implemented to determine which debtors may have the ability to pay back some of their debts. Those who do not pass the means test would be forced into a Chapter 13 repayment plan.

In addition, the new bankruptcy law requires more documentation from the debtor, repeated filings will be discouraged, the waiting period between Chapter 7 filings will be extended from 6 to 8 years, and a debtor's final discharge is subject to completing a course in financial management.

Any individual or business can file. Once filed, the individual or business is referred to as a "Debtor". You cannot file if you have had a bankruptcy discharge within the last six years; nor can you file if a prior filing was discharged for cause within the last 180 days.

The two basic kinds are Chapter 7 or Chapter 13.

Chapter 7 is available to both individuals and to businesses. This is a total liquidation, under the supervision of a Bankruptcy Trustee, of all of your assets that are not protected by certain "exemptions", such as a certain amount of equity in your home or your car. Any money received by the trustee is paid out, pro rata to the various creditors and the Debtor is then freed from his or her debts.

Chapter 13 is available only to individuals whose debts do not exceed a certain amount. It allows for a plan to pay creditors at least part of their debt over a three to five year period. The amount paid depends on your current income and the value of your assets. The trustee would collect your payments, generally on a monthly basis, and pay the money out to creditors over the contemplated period. Assuming the successful completion of the plan, a discharge would then be received and the unpaid balance would need not be paid.

Generally, you may file a bankruptcy and retain all of your personal belongings, including your house, your car and all household goods. If you owe more on your car than the car is worth, the bankruptcy court will not sell your car, because after sale there would be no money left over to make a distribution to your creditors. The same goes for your home and personal property. Even if your property is worth more than what is owed on it, usually state bankruptcy exemptions can be used to protect these items.

You may be more at risk of losing property if you don't file bankruptcy, as creditors can sue you and attach your bank accounts, garnish your wages and attach and seize your property. As a result, you may miss rent, mortgage or car payments, making it difficult to provide even your most basic necessities.

If all or most of the debts are in your name only, your spouse may not have to file. Creditors usually cannot pursue a non-filing spouse, unless he or she is legally a co-debtor on the debt. Additionally, the bankruptcy should not be reflected on the non-filing spouse's credit report. The law does vary, however, from state to state so make sure you speak to your bankruptcy attorney about whether or not your spouse has to file.

The only parties that receive notice of the bankruptcy are your creditors, the bankruptcy court and the IRS. Generally, the bankruptcy will have no effect whatsoever on your taxes. Your employer will not be notified of the bankruptcy unless your employer is also a creditor. The bankruptcy is public record, so anyone who wants to find out could determine that you had filed. Generally, however, only you, your creditors and the IRS will know about the bankruptcy.

Unless your employer is a creditor, or unless you have a wage execution to pay a Chapter 13 Plan, your employer will not be notified. On the other hand, should your employer find out about your bankruptcy, there are laws protecting employees from being discriminated against on the basis of a bankruptcy filing.

It depends on the amount of equity you have in your home and also may depend on your home state. Federal bankruptcy law allows for a limited amount of equity in your home, that is the amount of the value above and beyond the mortgage. Some states, such as Florida, have much more generous provisions. In many cases, if you are earning a regular income and can pay your regular monthly bills, including your mortgage, (but not including your credit cards), your house can be saved.

There were over 1 million bankruptcies filed in the United States last year alone. Common sense will tell you that these people are not all living on the street. If you are presently renting a home or apartment, usually your present landlord will renew your lease without running an updated credit report, and will have no knowledge that you even filed a bankruptcy. If you are applying for a new lease, there could be some slight difficulties that can easily be overcome. We have found that larger leasing companies usually have stricter policies regarding leasing to applicants with blemished credit. Remember that it is the blemished credit report, not necessarily the bankruptcy that is reflecting poorly on your application. Also, with no outstanding debt, you may appear to be a better risk than other applicants who have outstanding debt and blemished credit reports. We find that a good faith gesture, such as offering an extra month security deposit, may be enough for a potential lender to overcome her concerns about your blemished credit.

Are you being sued?
If you are being sued, and you own a home, we strongly urge you to speak with a bankruptcy attorney immediately about filing a bankruptcy. A bankruptcy will stop a lawsuit immediately and prevent your creditors from placing a lien on your home or garnishing your hard-earned wages.

Is your home being foreclosed or is your car about to be repossessed?
If it is, very often bankruptcy may prevent the foreclosure action or repossession from proceeding and allow you to consolidate your mortgage arrears or automobile balance and make payments on those debts over time through a payment plan. If your house is being foreclosed or your car is about to be repossessed, Chapter 7 may not be an option. Chapter 13 may save your house and your car.

Do credit cards or medical bills have you so deep in debt that it is hard for you to save for the future?
If you are only paying the minimum payment on the credit card bills from month to month (generally from two to three percent of the outstanding balance), and the interest rate is only 15%, you will take about 20 years to pay off a $10,000 debt. Do you really want to be in the same financial situation in twenty years? Bankruptcy may be able to provide you with a fresh start and get you out of debt.

Congress has decided that the honest debtor who is in debt beyond his or her ability should be able to repay debts (or be released from paying all debts) and should be given a fresh start through the discharge of debts in a bankruptcy proceeding. However, not all debts are dischargeable. For instance, most taxes cannot be wiped out; nor can spousal or child support, student loans or criminal fines and penalties. There are certain other debts which also cannot be wiped out that you can discuss with an attorney before you file.

By law, debt collectors will not be able to contact you once the bankruptcy proceedings are filed. Also, if your house is in foreclosure, that also will be stopped. As a matter of fact, if the debt collector is aware that the bankruptcy has been filed and continues to call you anyway, there are substantial penalties that they can suffer.

After listing all credit cards on the Bankruptcy Petition, in most cases, you can ultimately reaffirm one or two if you agree to repay the amount that was owed to that particular creditor. Whether you want to do that or not is sometimes questionable, however, since those are the debts that you were trying to get rid of to begin with. However, there are several ways to get credit after bankruptcy. One way is to reaffirm a debt, as previously discussed. Also, some banks are now offering a secured credit card, meaning that your credit limit would be based upon the amount of money that they are holding in their bank, to potentially offset your debt against the money that they are holding.
BR> As to your future credit, many creditors are more likely to extend you credit after you file for bankruptcy than before your filed because with all of your dischargeable debts wiped away, you would now have more disposable income to pay the new debts. In addition, creditors know that the debtor cannot file for bankruptcy for another six years, thereby prohibiting you from being able to wipe them out as a creditor during that period of time.

This is a very common question. My response is usually that your credit history looks pretty lousy now; therefore how much worse can it get with a bankruptcy. As previously indicated, while the bankruptcy will appear on the credit report for ten years, once filed, and once you begin to re-establish your creditworthiness, it will not make much difference.

As to wiping out all debts on the credit report, one should think of a credit report like a history book. You cannot change history, but you can add to it. Likewise, you can only add to your credit report. Hopefully, the bankruptcy discharge will be the end of the "bad history" and the beginning of the "good history".

First, you would discuss your entire situation with your attorney. You will need to be prepared to discuss all areas of your financial life, including each and every debt and creditor you have. It is very important to list all of your creditors in your bankruptcy. You will also discuss all of your assets, the values of the assets, whether they are exempt (and can therefore be kept) and also what your income situation is. After a full review, a determination can be made as to whether bankruptcy is right for you and, if so, which chapter. If not, there may be non-bankruptcy alternatives.

If a determination is made that bankruptcy should be utilized, the common course is that a Petition is filed with all of the pertinent information. Eventually, a Trustee is appointed and you would attend, with your attorney, a "341 Meeting" (referring to Section 341 of the Bankruptcy Code, also called the "First Meeting of Creditors") to discuss your situation with the Trustee. At this hearing the Trustee will ask you questions under oath regarding your bankruptcy papers and their contents. After the Trustee is done, creditors will be permitted to question you.

In Chapter 7, a discharge would follow. After this hearing, you would not normally need to return to Court. However, if a creditor files a motion or an adversary action, you will probably have to return to court. This is the exception and only your attorney can determine if this is likely to happen. In Chapter 13, a hearing before a Bankruptcy Judge would take place to approve your plan and the discharge would follow the completion of the plan.

Probably less expensive than paying the excessive interest rates that you have been paying on your credit cards! This question can only be answered after a full review of your entire situation with your lawyer.

When considering filing a bankruptcy, you want to be advised by someone who is familiar and experienced with all of the "ins and outs" of bankruptcy law. Especially when you own a home or car or have other assets that you are trying to protect, you do not want your advice from an attorney who knows a little bit about a lot of different areas of law, but not a lot about bankruptcy. When you call a bankruptcy attorney for information regarding bankruptcy, ask them exactly how many bankruptcies they have done. Educate yourself about your options, but be educated by someone who is qualified.

Although bankruptcy may legally be reported to your credit report for up to 10 years, you can begin to reestablish your credit immediately. Remember that "credit" is your ability to borrow money. Lenders consider many factors while determining whether to loan you money, but most importantly, they consider your debt-to-income ratio.

Filing eliminates most, if not all of your debts, therefore reducing your debt-to-income ratio, potentially improving your ability to borrow money in the future. Some financial institutions actively solicit business from people who have filed. Lenders are in business to make money by lending you money and charging you interest. Lenders know that once you have filed, you will not be able to file again for 8 years.

Many lenders have programs that provide for post-bankruptcy borrows to obtain home financing within a year or two after a discharge. Many people even receive solicitations for unsecured credit cards almost immediately upon receiving their discharge. However, be careful not to get back into the credit card "trap".