As you contemplate filing for personal bankruptcy you need to understand the basics of this type of legal action. High on your list of items to review is what is protected through a personal bankruptcy. Understanding the extent of protection you obtain through a consumer bankruptcy is crucial to determining whether bankruptcy is the appropriate course for you.
Two different types of consumer bankruptcy provide you with different levels of protection. A Chapter 7 bankruptcy protects you through a complete or nearly complete discharge of your debts. At the conclusion of a Chapter 7 bankruptcy, your responsibility for money owed to all or most of your creditors ends.
A Chapter 13 bankruptcy protects you from direct action against you by your creditors. The process permits you to develop a repayment plan overseen by the court. Although you remain obligated to pay most if not all of your debts through the Chapter 13 plan, these payments are stretched out over two to five years.
The most common misconception associated with a personal bankruptcy is that although you are protected from direct lawsuits by your creditors, you lose your property in the process. The fact is that certain types of your property are protected and are not subject to forfeiture through a bankruptcy.
These items of property include your residence and your automobile, provided they meet the definitions of "exempt property" that are in force in the state where you file bankruptcy. Exempt property is defined differently from one state to another. Examples of what is exempt include clothing, home furnishings and tools of the trade (items used to make a living). Other protected assets are life insurance policies and retirement accounts.
Consumer bankruptcy provides a veil of protection against further collection activity by your creditors. The moment you file either a Chapter 7 or a Chapter 13 bankruptcy, the court issues what is known as an order of automatic stay. The automatic stay order requires all of your creditors to cease all collection activity, unless there is a later order from the bankruptcy court permitting additional collection efforts.
Properly preparing your bankruptcy paperwork is vital to taking advantage of the protections available to you. Not only must you be certain to complete the bankruptcy petition appropriately, you need to be certain to prepare the accompanying schedules according to the U.S. Bankruptcy Code and the local rules of the court where you seek bankruptcy protection.
The U.S. Bankruptcy Court offers specific instructions and guidance for paperwork preparation at its website. The website also provides instructional videos to educate you on the paperwork and the process.
To ensure that you receive all protections afforded through bankruptcy, consider hiring a bankruptcy lawyer. Local and state bar organizations maintain directories of lawyers in different practice areas, including bankruptcy representation. Contact information for these organizations is available to you through the American Bar Association:
American Bar Association 321 N. Clark St. Chicago, IL 60654-7598 312-988-5000 abanet.org