If you can't keep up with your current debts, it is likely that you'll need to file for bankruptcy. However, the process can be quite confusing, and there may be many new legal terms that you are unfamiliar with. Here is what you need to know about some common terms you'll come across.
While the bankruptcy proceedings are taking place, an automatic stay may be granted to you by a judge. This means that creditors are not allowed to ask you for money that they are owed, and they must wait for the bankruptcy filing to be finished to find out if they will receive their money. This is to protect individuals from being harassed by creditors during a bankruptcy.
Your bankruptcy filing may have exemptions for certain property. This means that you can keep the property, even after the bankruptcy is finished.
Any debt that you no longer have to pay after a bankruptcy is considered discharged.
A secured debt is any debt that you owe for an item that can be taken back by the creditor due to legal documents that you have signed. This is common for real estate and auto purchases that have a lien or mortgage attached to them since it is very easy to identify the purchased item and repossess it.
Chapter 7 Bankruptcy
When you are in deep financial trouble and know it is impossible to repay your debts, you'll need to use Chapter 7 bankruptcy. The process involves liquidating your assets in order to pay back as much as you can to creditors, with most of your debts being discharged as a result. While some debts will not go away, like back taxes that are owed, it can help you with unsecured debts from credit cards.
Chapter 13 Bankruptcy
While some forms of bankruptcy will get rid of your current debts, Chapter 13 bankruptcy does not. The idea is to combine all of your debts so that you only have to make a single payment, which will help ensure that all your creditors get their money. The benefits to using Chapter 13 bankruptcy is that your credit will not be affected as long, and you'll still be able to keep some of your big ticket items like your home and vehicle.
If you need help navigating the legal terminology that is part of a bankruptcy filing, you should consider working with a local bankruptcy lawyer in your area.