How to go about filing for Bankruptcy in the United States

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How to go about filing for Bankruptcy in the United States

Federal bankruptcy Law was created to protect United States citizens as well as business entities that are unable to repay their debts due to genuine financial hardships. The following article touches on the basics of Bankruptcy proceedings under the Federal bankruptcy laws.

Bankruptcy laws in the United States helps debtors who are unable to systematically dispose and discharge of their debts. This is however done in extreme conditions when the debtor is genuinely not able to repay his creditors and this financially dismal situation is likely to continue in the near future. And the last legal resort to getting rid of the debts is through filing Bankruptcy. Once bankruptcy has been filed in a bankruptcy court the creditors can no longer directly demand funds from you, neither can they proceed with foreclosures or repossessions. They have to wait for the outcome of the bankruptcy procedures to get over for their dues cleared.

Bankruptcy by individual debtors is normally filled under two chapters, Chapter 7 and Chapter 13 :


Chapter 7 bankruptcy
Chapter 7 bankruptcy laws allow a quicker resolution of bankruptcy procedures. In this procedure the court appoints a chapter 7 bankruptcy trustee on behalf of the debtor. The trustee is given all the personal bankruptcy information including details of all the assets currently in possession of the debtor. The trustee then proceeds to liquidate all the assets except the exempt assets (which the bankruptcy law allows the debtor to keep with himself for his and his family’s survival). The funds generated from this liquidation process, is then distributed among the secured and non-secured creditors according to a pre-decided priority basis. In case even after the liquidation process there still exist a negative balance with the debtor then those credits/ loans are written off by the bankruptcy court.

Chapter 13 bankruptcy
Chapter 13 bankruptcy laws is usually proceeded when either a debtor does not qualify for chapter 7 bankruptcy or a debtor wants to avoid the ill effects of a chapter 7 bankruptcy which is sure to leave the debtor with little or no assets. In this case too after filing the petition for bankruptcy the court protects the debtor from all actions of the creditors, here too it appoints a trustee. But this trustee instead of liquidating all assets works with the debtor to draw up a plan to restructure the debts (under chapter 13 laws). The plan that is drawn up looks into all aspects including assets, liabilities, future income and expenditures. The trustee and the court also closely scrutinize your ability to fulfill your obligations.

However any type of bankruptcy should be absolutely the last resort. Options like debt consolidations and debt restructuring should be explored first. In fact to ensure this it has been made mandatory for all debtors to go through financial counseling before they are eligible for bankruptcy proceedings.


The author Ricky Smith is an expert on bankruptcy proceeding and has written informative articles on topics such as Chapter 7 bankruptcy information and Personal Bankruptcy Lawyers; Federal Bankruptcy etc.
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