Bankruptcy Basics: What is Bankruptcy?

Bankruptcy Basics: What is Bankruptcy?

Bankruptcy is a process that allows you to obtain relief when your debts exceed your assets. Bankruptcy is an important part of the American legal and financial landscape with a long history, in fact it is part of the Constitution. The way the law treats people who cannot pay their debts has come a long way from the workhouses and debtor’s prisons. Today’s bankruptcy process is designed not to protect the interest of the creditors but rather to provide you with a fresh start.


What Kind of Relief Does Bankruptcy Provide?

The ultimate relief that most people are looking for from a Bankruptcy is a discharge of their debts. A discharge means you no longer have an obligation to pay the creditor. Many debtors can expect to have most, or all, of their unsecured debt discharged. Other than a discharge Bankruptcy also provides for an automatic stay. Once your creditors know a bankruptcy case has been filed, they must stop all collection actions including pending lawsuits, foreclosures, pending sheriff sales, making phone calls, and sending collection letters. Bankruptcy also provides an opportunity to get caught up on or to restructure secured debts (i.e. mortgages, car loans).


How Do You File for Bankruptcy?

Because bankruptcy is a matter of federal law you must filed your case in a United States Bankruptcy Court, not a state court. A bankruptcy case is initiated by filing a Petition along with the necessary supporting documents and paying the filing fee. The process of preparing a Bankruptcy Petition requires gathering lots of information which essentially present a snapshot of your entire financial position at the time of filing. You also need to provide information regarding your financial activities over the last few years leading up to your filing. When you file your Petition and supporting documents you must swear that the information in them is accurate under penalty of perjury.


Do You Need an Attorney to File for Bankruptcy?

You are not required to be represented by an attorney in your bankruptcy case, and some individuals are capable of successfully obtaining a discharge on their own. However, bankruptcy law is a complex field and there are many pitfalls. Unrepresented individuals are much less likely to receive a discharge than those assisted by an attorney.

An attorney can help you successfully navigate the bankruptcy system for example by, helping you select the best chapter to file under and ensuring that your Petition is properly prepared to prevent it from being dismissed. An attorney is also able to make sure you are maximizing your benefit by using the exemptions properly and understand your options regarding secured debt.