What is Bankruptcy?

Bankruptcy is a complex legal system in the United States which serves to give individuals a “fresh start” from debt. Often the subject of fear and loathing, the bankruptcy system is crucial to the functioning of a modern economy. Bankruptcy not only removes the burden of excessive debt, but also helps to keep credit flowing in the economy. Bankruptcy gives you the chance to take control of your debt problems and eliminate your unwanted debt.

When a bankruptcy case (petition) is filed the Court appoints a Trustee to administer the bankruptcy case by reviewing the debtor’s documentation. The Trustee’s duties are different depending of whether the case is a Chapter 7 or Chapter 13.

Once the case is filed an injunction called the “Automatic Stay” goes in to effect. The Automatic Stay is what forces creditors to stop any and all collection activities against you. It stops those annoying and embarrassing phone calls, collection letters, lawsuits, garnishments, repossessions, and foreclosures.

Everyone who files for bankruptcy is required to attend a hearing called the Meeting of Creditors. Historically, is was where creditors could show up and ask the debtor questions. Nowadays, that just does not really happen. Usually the only time a creditor will attend the Meeting of Creditors is when they don’t understand the process and think they are supposed to be there. The Meeting of Creditors is really quite painless. What really happens is that a debtor meets their Trustee and he asks them a series of simple question. If a debtor has been honest in the petition and the paperwork is filled out correctly then the hearing is over very shortly.

The desired outcome of any bankruptcy case is a discharge. A discharge is an order from the bankruptcy court permanently disallowing any creditor from attempting to satisfy a debt against the debtor. Although the discharge is permanent, not all debts are dischargeable. For example, most tax debts cannot be discharged, in addition to spousal support awards and student loans. As the bankruptcy discharge is a very powerful remedy, it is only given to honest debtors that disclose all of their property and debts.