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by John M. Roberts

Bankruptcy is a legal action that is held under the protection of the federal bankruptcy courts to give relief to filers who are experiencing serious financial difficulties.

Filing for bankruptcy protection is a legal process designed to help individuals and businesses that have become overburdened with debt and cannot meet their financial responsibilities to eliminate or repay some of it under the protection of the federal bankruptcy court.

There are two types of bankruptcies, liquidation and reorganization. Once filed, the responsibility for repaying debt is temporarily suspended under what is called an automatic stay. Under the automatic stay, creditors listed on the petition are prohibited from contacting the debtor during the time the debtor is under bankruptcy protection.

After filing a bankruptcy petition in the appropriate court, a trustee is assigned to the case to make the determination as to whether the individual or business is insolvent and can be adjudged to be bankrupt.

Once the trustee reviews the petition and submits the findings to the court, the court then makes the determination whether or not to discharge the individual or business from the responsibility of the debt.

There are two types of debt. One is secured and the other is unsecured.

When liens are placed against tangible assets such as homes or other real estate, cars, boats and goods and materials that can be repossessed, it is call secured. Some liens, such as court ordered judgments, tax liens and mechanic's liens can be placed on real estate as well as on personal property.

Unsecured debt is debt in which there is no pledged collateral. The creditor cannot reposes's or seize any of your property if the bill is unpaid such as medical bills, credit card purchases, alimony, child support, student loans, etc.

There is some debt that the courts will not discharge. The main exceptions are child support, alimony, traffic tickets, fines from criminal cases, past due federal or state income taxes and debts not listed in the petition.

Note: A court is not obligated to discharge a bankruptcy until it is satisfied that the debts cannot be repaid or if there are underlying circumstances such as fraud or unfair distribution of assets between creditors.

Liquidation and reorganization are terms commonly used in bankruptcy proceedings. The chapter filed is usually determined by an individuals income, the type and amount of debts owed, and whether or not property is involved.

Chapter 7

In a liquidation bankruptcy, assets may be sold off to pay down as much of the debt as possible.

Chapter 13

In reorganization bankruptcies, part or all of an individuals income is used to pay down the debt over a specific period of time.

Bankruptcy should be used as a last resort instead of an easy way out of repaying debts. Before your file, you may consider contacting an accountant, a credit repair organization, or a credit counseling service for help.

Note: Recent changes to bankruptcy laws have made it much more difficult for courts to grant bankruptcy protection to individuals and businesses so it is advisable to contact an attorney if you plan to file.

New bankruptcy laws

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