The definition of bankruptcy is a process of the federal court that is aimed at helping both businesses and individuals in clearing up debts and repaying under the protection given by the bankruptcy court. The two types of bankruptcy are liquidation and reorganization.

Chapter 7 of the bankruptcy code allows for liquidation bankruptcy which allows you to plead the court to have your debts discharged. Returns for the sale or liquidation of some of your properties shall be divided among your creditors. This type of proceeding lasts 4 to 6 months. It requires one court appearance. It doesn’t require payments over a long period of time.

To qualify for Chapter 7 bankruptcy, you must meet certain criteria. If you have filed for bankruptcy in the past 6 to 8 years you can not file again. Other things reviewed are your income, expenses and overall debt.

You may qualify for the other type of bankruptcy. Disabled Veterans who incurred their debt during their active duty are almost automatically allowed to file. Those people whose debts are caused by running a business can also qualify.  If you don’t fit into one of these categories you may qualify based on other criteria.

There are new rules imposed on bankruptcy. Your current monthly income (an average of the last six months) is compared against the median income for a family of similar size in your state. Social security benefits and disability benefits are not included in this calculation. If your income seems to be enough to support reorganization bankruptcy then Chapter 7 bankruptcy will not be allowed.

Most people prefer chapter 7 since repayment of a portion of the debt is unnecessary. You may lose some of your property but usually not all of it. So you can start over.

Under Chapter 13, reorganization bankruptcy, you file a plan with the bankruptcy court on how you intend to discharge your debts. You designate the amount each of your creditors will receive depending on your finances. After a three or fie year repayment plan, if any debt still remains your debt can be discharged.  If there are obvious financial difficulties, the court itself can decide to discharge the debt earlier than was planned.

Both types of bankruptcy have an additional requirement which is completions of credit counseling by an agency that is recognize and approved by the United States Trustees office. The help you determine if bankruptcy is essential. They also examine the possibility of informal repayment which you may not have been aware. Counseling is still a requirement no matter what course you take. Completion of post counseling is also required.

The aim of credit counseling tis to teach you financial management to avoid problems in the future. The bankruptcy discharge will not be released unless this is completed.

Counseling helps a person recognize their responsibilities and mistakes which led to financial problems. The process takes into consideration both the debtors and creditors interests and advises a plan to fulfill them.

Bankruptcy must be considered as a last resort. Discipline is very important to keep you from having financial difficulties.

Debt Management