WHAT IS BANKRUPTCY?

Normally you are expected to pay your debts when they become due. When, for whatever reason, you are not able to pay your debts when due, late charges and interest increase the size of the debt and may make payment impossible. Protection from your creditors can be requested from the United States Bankruptcy Court.

A Chapter 7 bankruptcy filing, often referred to as "straight Bankruptcy" allows you to discharge some and often all of your debts while allowing you to keep most, and with a skilled attorney's help, generally all of the things you own. "Discharge" simply means you are relieved from the obligation to pay your debts.

Chapters 11, 12 and 13 are debt reorganization plans under the protection of the Bankruptcy Court where you pay off your debts over a long period of time, often as long as 5 years and sometimes at less than you owe. Most people and small businesses that can reorganize do so under Chapter 13. In Chapter 13 you can stop the interest on most debts, including the IRS, and set up a payment plan to pay your debts in 1 monthly payment that is often much less than you are obligated to pay now.

The idea of Bankruptcy relief has been around since Biblical times. In the Old Testament, debts were forgiven on the seventh year. Early bankruptcy laws in some countries let creditors take everything a person had when the debts were not paid. In England, debtors could be imprisoned or worse. The United States has never allowed a person to be physically punished for being unable to pay a debt. The founders of this country provided for bankruptcy protection when our Constitution was drafted, even before considering the freedoms of speech, religion, found in the Bill of Rights.

America has added several new protections. Debtors are not imprisoned, injured or abused. Additionally, our laws provide for certain things that cannot be taken away from you because lawmakers felt you needed to keep them to rebuild life after bankruptcy. These are called "exempt assets" and generally include most and often all of the things people normally own.

Nowadays, credit histories are kept, which may warn lenders to look closely at your ability to pay back loans. Some will want to know what made your use of the Bankruptcy Court protection necessary. Most creditors can understand that circumstances beyond your control can force anyone to ask for Bankruptcy court protection. Many department stores and large businesses are in business now because they asked for the Court's protection themselves at one time or another.

Bankruptcy protection gives you what Congress refers to as "a fresh start." Often people mistakenly believe that the filing of a bankruptcy petition damages a person's credit. In reality, the damage has already occurred or will occur anyway because you cannot repay your debts. Bankruptcy is not damage, it is damage control. It stops all collection activities and gives you the opportunity to rebuild your credit.

There is life after bankruptcy. Bankruptcy is on your credit history for 10 years. Nonetheless, it is possible to completely rebuild your credit in 3 to 5 years. After your Bankruptcy is discharged, the way you handle old debts you keep and any new debts you incur will determine how quickly you can rebuild your credit. This works only if you are careful not to incur new debts beyond your ability to pay when due.

If you are considering bankruptcy, don't feel alone. Over one million individuals, families and businesses used bankruptcy protection last year and are now on the road to rebuilding their credit.