Bankruptcy offers a variety of different forms of relief for those overwhelmed by Debt. Most people who file for bankruptcy protection are seeking out at least one of three types of legal protection: the Automatic Stay, the exemptions, and the Discharge.
The Automatic Stay is an order that prevents your creditors from coming after you. It goes into effect as soon as the Bankruptcy Petition gets filed. For example, let’s say you’re a couple of months behind on your car payments, and the Finance Company is trying to repossess the vehicle. As soon as the Bankruptcy gets filed, that Finance Company has to stop coming after your car. In fact, even if they repossess the car on Monday, and you file for Bankruptcy on Tuesday, you can make them give the car back to you. Another example: let’s say you’re getting sued by a credit card company. As soon as the Bankruptcy gets filed, they have to stop coming after you. The Automatic Stay is the first big benefit you get from filing for Bankruptcy. It gets the creditors off your back, and lets you get a fresh start.
The next benefit you get from Bankruptcy comes from the exemptions you claim. Exemptions are statutory protections that allow you to keep your property. The idea is that even if you file for Bankruptcy, there are certain things they shouldn’t be able to take from you. So there are exemptions to allow you to keep your house, allow you to keep your car, and allow you to keep so much personal property. There are other exemptions out there, but I’m trying to give you a basic idea as to how these things work without making things too complicated.
The last kind of relief is the Discharge. The Discharge comes at the end of the Bankruptcy, and it’s basically an order that says you’re not responsible for the debt anymore. Once the Discharge is entered, those debts basically don’t exist, and your creditors cannot come after you ever again. It essentially takes the temporary protections of the Automatic Stay and makes them permanent.
WHAT KINDS OF BANKRUPTCY ARE OUT THERE?
The overwhelming majority of Debtors will find the relief they need in either Chapter 7 or Chapter 13 Bankruptcies, but there are actually four types of Bankruptcy available to individuals:
Chapter 7 is the most common type of Bankruptcy. It involves an evaluation as to whether the Debtor has excess income or assets. If neither is the case, the Debtor is granted a discharge, allowing them to get a new financial beginning.
Chapter 13 involves a reorganization of the Debtor’s estate. Chapter 13 involves the Debtor making monthly payments to the Bankruptcy Trustee, who distributes those payments to the Creditors. Chapter 13 in particularly useful for Debtors who find themselves behind on real estate or vehicles, as it contains a mechanism for repaying those Debts and catching the Debtor back up within their Bankruptcy plan.
Chapter 11 is useful for reorganizing businesses or Debtors with complicated Financial Situations.
Chapter 12 is intended for Debtors who seek to reorganize family farms or fishing operations.