Bankruptcy helps in achieving this “fresh start” by discharging certain debts, or in other words, by releasing the debtor of personal liability for the debts and prohibiting creditors from taking action to collect on those debts against the debtor. Immediately upon the filing of a bankruptcy, an “automatic stay” prohibits creditors from taking any action to collect a debt from the debtor. This means all phone calls from bill collectors stop, any action to foreclose on a house stops, any lawsuits or threats of lawsuits stop while these matters are resolved in the bankruptcy.

Does bankruptcy sound right for you? It may not be as simple as saying “yes”.

In order to determine if bankruptcy is right for you, it is important first to determine if other non-bankruptcy alternatives are available. For example, sometimes credit card debts and other obligations can be settled at a discount or a home mortgage lender may be willing to modify the mortgage. Sometimes these remedies will grant sufficient relief making bankruptcy unnecessary.

If a bankruptcy is necessary to obtain debt relief and a fresh start, it must next be determined which type of bankruptcy is available or most appropriate under the circumstances. The different chapters of the Bankruptcy Code offer different types of relief and can have a very different impact on the debtor. Each chapter has its own eligibility requirements that a debtor must meet to qualify for relief under that chapter.

The most common and popular type of bankruptcy filing is a “liquidation” under Chapter 7 of the Bankruptcy Code. Chapter 7 bankruptcies are popular because they can be completed from start to finish in just a few months. However, under the amendments to the Bankruptcy Code enacted in 2005, individual consumer debtors must meet specific requirements imposed by a “means test” in order to qualify as a candidate for a Chapter 7. In addition, there can be disadvantages to a Chapter 7 because certain types of debts are not discharged and the debtor may not be able to keep certain assets in a Chapter 7 bankruptcy.

If a Chapter 7 is not a good fit, either because the debtor does not qualify under the “means” test or because the debtor needs to discharge certain types of debts or retain certain property, a Chapter 13 “reorganization” bankruptcy may be the answer. Under a Chapter 13 bankruptcy, the debtor must have a regular income, a portion of which is paid into a bankruptcy “plan” over a period of three to five years. At the end of the plan term, if the debtor has complied with the requirements of the plan, a discharge is granted. While this is a longer process, it can result in the discharge of certain debts and allow the debtor to retain certain assets that could not be accomplished in a Chapter 7.

If you believe you are in need of debt relief and a fresh start, contact our office for a free 30 minute consultation with a bankruptcy attorney to determine what alternatives are available to you.