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How Can Bankrupty Help Me?

The goal of a Chapter 7 bankruptcy is a discharge from debt. A discharge is an order from the bankruptcy court that says that a creditor cannot ever take any action to collect a debt that was owed at the time of the bankruptcy filing. A creditor who tries to collect such a debt can be punished by the bankruptcy court, usually by civil contempt and fines. Credit reporting agencies are prohibited from reporting discharged debts and can be subject to civil penalties if they do so.

In a Chapter 13 proceeding, the person filing is given a plan to restructure and repay certain portions of debt that has become unmanageable. The bankruptcy court will supervise this plan for a period of three to five years. A chapter 13 plan gives different treatment to creditors that have security or collateral for a debt, such as a bank or mortgage lender, from those creditors who do not, such as credit card companies or hospitals and other medical service providers. At the end of the plan period, those portions of your debt that are not secured may be discharged.

One of the immediate benefits of a bankruptcy proceeding is that creditors must immediately cease and desist all collection efforts. This brings immediate peace to the person filing – the threatening letters, phone calls and other forms of legal harassment stop immediately. This is known as the automatic stay. It is illegal for a creditor to violate the automatic stay and the bankruptcy court can punish any creditor who does so by trying to collect on a debt after the bankruptcy petition is filed.

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