BANKRUPTCY BASICS
Bankruptcy is a legal process in which a person or a business unable to pay its debts may have most of the debts canceled, or “discharged”. The purpose of bankruptcy is to allow those who suffer financial hardship to receive a fresh start. Most of the bankruptcies are filed either as a Chapter 7 or Chapter 13.
Chapter 13 or Chapter 7?
One purpose of a Chapter 13, as opposed to a Chapter 7 is to enable a debtor to retain certain assets (for example, a home) that might otherwise be liquidated by a Chapter 7 Trustee. It also provides an alternative to Chapter 7 when a debtor has too much "disposable income" (the net monthly income exceeds the net monthly expenses) and usually results in much lower monthly payments then you were previously paying.
The purpose of almost any personal bankruptcy is to discharge existing debts by repaying all or a portion of debts, and to allow a fresh start on your finances. Once a discharge is granted, there is no longer a need to repay most of the debts that were incurred before an individual filed for bankruptcy.
The only way to determine which Chapter to file under is to compare your options under the other available Chapters and be sure you have consulted with a local experienced bankruptcy attorney to properly analyze your options.
Automatic Stay
The automatic stay is a provision in the Bankruptcy Code that temporarily prohibits most creditors from continuing or commencing collection activities against you. When you file for bankruptcy, the automatic stay immediately goes into effect. The automatic stay prohibits most creditors from continuing with collection activities, which can provide welcome relief to debtors as well the opportunity to regroup during bankruptcy. There are some exceptions to the automatic stay.
Because of the immediate effect and nature of the automatic stay, the filing of the bankruptcy typically stops all collection actions, such as home foreclosures, evictions, car repossession, wage garnishment and bank levy.
If a creditor knows about the bankruptcy but does not stop all collections against you, then the Court may find this creditor to violate the automatic stay and further charge the violating creditor with your damages, attorney fees and sometimes also punitive damages.
Because there are exceptions to the automatic stay, you always want to consult with a qualified local bankruptcy attorney before filing for bankruptcy.
Discharge
A bankruptcy discharge is the desired outcome of your Chapter 7 or Chapter 13 bankruptcy case. Generally, by the end of the case the Bankruptcy Court grants you an order of discharge.
A bankruptcy discharge releases you from personal liability for debts that are dischargeable. With the discharge order you are no longer legally required to pay any debts that are discharged. The discharge is a permanent injunction prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, this includes legal action and communications with you, such as telephone calls, letters, and personal contacts.
If a creditor knows about the bankruptcy discharge and, but continues collecting from you, then it may be held in contempt of court and may be required to pay your damages and attorney fees.
Although you may not be personally liable for discharged debts, a valid lien against your property that has not been avoided in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. If you have a judgement lien against your property at the time of the bankruptcy filing, then it is important that you mention the lien to your attorney and review together if the lien may be avoided.
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