Bankruptcy is a legal declaration of an individual or organization of their inability to pay their debts to their creditors. One of the main reasons for the Bankruptcy Law is to help a person who is hopelessly burdened with insurmountable debt by wiping it out and allowing the debtor a fresh start.
Two kinds of filing for bankruptcy
The two kinds of bankruptcy filing is the straight and the reorganization bankruptcy. This is also called Chapter 7 and Chapter 13, respectively. The straight bankruptcy is a liquidation of all non-exempt property which is then turned over to the bankruptcy trustee. The cash converted from the liquidation will be distributed to the creditors and this will relieve the debtor of his debts. The debtor is then made clear of all dischargeable debts in a span of four months on average.
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The reorganization bankruptcy is reserved and filed by debtors who wish to pay their debts in a period of three to five years. This is also the bankruptcy filed when a debtor has non-exempt property that they wish to keep. It is also an option for those who have a steady income that is only sufficient enough to pay off their debts.
Filing for bankruptcy
There are two ways to go about filing for bankruptcy. The first is having the debtor himself file a petition and volunteer bankruptcy. The second is when creditors ask the court to make an order to deem a debtor bankrupt. A Bankruptcy Trustee is required to administer the bankruptcy in both cases.
Non-exempt assets
The assets that are subject for liquidation in case of bankruptcy are called the non-exempt assets. They are the assets in excess of allowed personal exemption such as automobiles, real estate, and boats. These assets will be liquidated by the bankruptcy trustee.
Cost of filing
Filing a Chapter 7 bankruptcy will cost around $300. Hiring a lawyer will vary depending on the lawyer's rate, but it should be more or less $1,600 to $2,000. Other lawyers give free initial consultation.
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