Bankruptcy is a process by which a debtor can obtain relief from his debts, through the courts. It is a legally declared inability by an individual to pay off his creditors. In most cases, the person or individual facing bankruptcy files for it in the courts. However, in some cases, the creditors may also file for bankruptcy in order to recover their money.
When you are unable to pay your debts, you are entitled to protection from the state. Under the protection of the bankruptcy court, debtors may be released from their debts, perhaps by paying a portion of each debt. The debtor surrenders his assets which are sold off to pay the creditors.
After you declare bankruptcy, your creditors will be served a notice of the bankruptcy. After receiving notice, they will not be allowed to take any action against you while the bankruptcy is pending. If you are threatened by a creditor after filing for bankruptcy, inform your lawyer. It may be possible that the particular creditor did not receive the court’s notice.
The common types of bankruptcy are:
- Straight Bankruptcy: Also called personal bankruptcy. A trustee helps to sell off your property to pay your creditors.
- Wage earner bankruptcy: You will have to propose a repayment plan to pay off your debts.
You can also make the choice to “reaffirm” your debt. In this procedure, you agree to pay your debt which would otherwise have been paid in bankruptcy. The court will evaluate your reaffirmation agreement and decide whether to approve it or not.
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