Debtor Protection and Debt Solutions Under Bankruptcy Law

For many struggling debtors today, bankruptcy may seem like a wonderful “bail out” that allows them a fresh start, but while debtor bankruptcy works well for some, it can lead to more trouble for others. It is important for each debtor to consider their situation carefully, examine the alternatives, and make sure they are making the best choice for their financial future. Those that decide bankruptcy is the right choice may find that it actually does give them the fresh start they are looking for and protects them from some of the sad consequences of overwhelming debt.

Bankruptcy Options

Most debtors have two options when considering bankruptcy. One is more suited for those who have little property and hope for relief from most, if not all, of their debts. The other is more suited for those who have a regular income and can continue to pay debts while saving their property from liquidation.

• Chapter 7 – or liquidation bankruptcy, begins with an automatic stay during which no creditors may pursue collection efforts. A bankruptcy trustee is appointed to assess the debtor’s situation, liquidate any property that is appropriate, and discharge as many of the debtor’s obligations as possible.

• Chapter 13 – or reorganization bankruptcy, begins with the same automatic stay, or hold, on collection efforts. A trustee is appointed to help the debtor create a reasonable repayment plan within their budget and to help them maintain it throughout the repayment schedule of three or five years. At the end of that period, any remaining debts may be discharged, while the debtor’s property is protected.

Both forms of bankruptcy stay on the debtor’s record for up to ten years and make it difficult to obtain credit and may influence job applications, security clearances, licensing applications, and more. Therefore, it is important to explore other options before deciding upon bankruptcy. Nevertheless, for many, bankruptcy is a powerful form of debt relief, providing a variety of benefits:

• The automatic stay gives the debtor relief from creditors throughout the life of the bankruptcy process. If most or all debts are then discharged or paid, creditors will have no reason to continue their collection actions.

• There are state and federal exemptions that protect certain types and amounts of property from liquidation in chapter 7. This may mean that many of those who qualify for chapter 7 may lose no property at all.

• Chapter 13 allows the debtor to retain all of their property and pay back most of their debts, providing a clean slate at the end of the repayment plan.

Getting Legal Help with Debtor Bankruptcy

While the benefits of bankruptcy can be tremendous, the consequences can be equally difficult. It is important to understand how a bankruptcy will affect a debtor before they enter into it. In addition, they must have wise guidance to make sure they take full advantage of all of the benefits of bankruptcy. That may be difficult without skilled legal advice from a bankruptcy attorney.