Understanding bankruptcy

Bankruptcy is basically the official way of announcing that a person can no longer repay his debts in his current situation. Consequently, it is also a plan that allows the borrower to resolve his debts by dividing all his assets between his creditors. The process of dividing the said assets is duly supervised, all for the purpose of providing equal partition among creditors.

Types of bankruptcy

Because there are many different debt situations, there are also a number of different types of bankruptcy to help individuals and businesses get out of debt:

-Straight Bankruptcy requires a debtor to be within a certain asset limit or to give up property over that limit to be sold by the court. A person who successfully declares bankruptcy is able to get out of debt completely.

-Reorganization, is way for businesses or individuals with massive debts to get out of debt.

Pros of Bankruptcy

When declaring bankruptcy to get out of debt, you will not have to repay most or all of your debt.

Declaring bankruptcy could prevent foreclosure of your home, stop repossession of such items as automobiles, and keep your utilities from being disconnected.

Bankruptcy to get out of debt will often stop wage garnishments and phone calls from debt collectors and allow you to get out of debt without continued harassment.

Cons of Bankruptcy

When declaring bankruptcy to get out of debt, you will not be allowed to keep collateral owed to a creditor unless you can keep up with the payments. Declaring bankruptcy usually does not allow you to stop payment on such things as child support, student loans, alimony, court restitution orders, certain types of taxes, or criminal fines.

If you had consignors on any of your collateral, your cosigners will not be able to get out of debt with you as they are liable for part or all of the debt you discharge through a bankruptcy.

Declaring bankruptcy, in an attempt to get out of debt, will not eliminate your mortgage or any other secured loan; it will only keep these payments at bay until you have dealt with other creditors.