Bankruptcy - Questions And Answers

What is bankruptcy?

Bankruptcy is a legal declaration of the inability to pay your creditors. This does not mean you have no money. On the contrary, many people who declare bankruptcy have enough money to live on. Instead, it means that you do not have enough money to match your basic living expenses and pay people to whom you owe money. How much this is can vary from person to person because every person needs a slightly different amount of money to meet their living expenses. Since there is no set amount, bankruptcy is often granted by a judge.

How do I know if I qualify for bankruptcy?

The best way to find this out is to speak with a bankruptcy lawyer. These lawyers are trained to know the state and federal bankruptcy laws and can inform you if you qualify. It is hard to know when the proper time to check with such a lawyer is, however. In general, if you are only barely making ends meet and are often hounded by creditors, it is probably a good idea to check with a bankruptcy lawyer. You should view bankruptcy as a last resort, however, and attempt to find ways to work with your creditors before you file.

How does bankruptcy help me pay my debts?

There are several different types of bankruptcy, all of which function in different ways. Businesses have several different versions of bankruptcy, some of which are useful for individuals. In general, should you need to file for bankruptcy, one of three things will happen. Either you will be required to pay a fixed amount per month until your debts are paid off, your assets will be liquidated and sold off to pay your debts and you will pay monthly to cover the rest, or your assets will be liquidated and sold off and then you will be absolved of any further debt. With any of these options, creditors can not attempt to collect above and beyond the agreed payment.

What are the most common types of bankruptcy?

The most common types of bankruptcy are called Chapter 7 and Chapter 13. A Chapter 7 type of bankruptcy is a basic liquidation. This is when the courts sell your assets, use the money to pay off creditors, and call it even. After that, creditors are not allowed to attempt to seek further payment. Chapter 13 bankruptcy is rehabilitation with a payment plan. This is the kind of bankruptcy you file if you have steady income. It cancels debts up to a certain date and fixes a payment per month for anything else owed. Under Chapter 13 bankruptcy, assets are not liquidated, but it does require certain amounts of payment every month.

How much money per month has to go to payment in a Chapter 13 bankruptcy?

Bankruptcy law states that "every penny of disposable income" must go to payment. This can vary depending on various factors, such as where a person lives, what they do for a living and whether or not they have a family. The courts tend to define "disposable income" as any income that does not go towards living expenses and upkeep of property. So items such as rent, car payments, and grocery money are not counted when the courts consider "disposable income". As such, many people aren't able to file for Chapter 13 bankruptcy because they do not make enough disposable income per month to properly pay creditors.

Please note that the information contained on this website is for information purposes only. We strongly suggest you seek professional advice from qualified and competent financial advisors, before making any financial decisions based on the information provided on this website. See our disclaimer for full details.

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