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Bankruptcy is a situation where an organization or individual is not in a position to pay off its debts. It is typically a last resort by an indebted individual or organization to get his finances in order and escape the incessant calls and letters from creditors. Filing for bankruptcy can be done by the creditor or the debtor. However in most instances, it is usually the debtor who files for bankruptcy. It is worth mentioning that it is only an insolvent person or organization which can be declared bankrupt. To be insolvent, you should owe a minimum amount of debt as prescribed by law, should not posses enough assets to pay off the debt and should not be already declared bankrupt.

A bankruptcy filing made under chapter 7 does allow individuals to eliminate most if not all unsecured debts. In a chapter 7 bankruptcy, the debtor is typically not required to pay any of the debts owed to unsecured creditors but may elect to remain personally liable to pay certain specific debts. In most of these cases, the debtor keeps all property and eliminates most debts. Depending on the caliber of your bankruptcy attorney, the entire process should be completed and closed within three and half months after the initial filing.

In legal parlance, chapter 7 is commonly known as liquidation proceeding. This is because the trustee is entitled to seize and sell the non-exempt assets of the debtor and distribute the proceeds to creditors. However, in most consumer cases, the debtor keeps all the property because the property is either exempt from seizure under state or federal law or so low in value that the trustee elects to abandon it all together.

Once the bankruptcy case is over, the debtor can opt to selectively pay all or any of his debts if he feels morally obligated to pay. However, he cannot be compelled to make payments on any discharged debts and creditors are legally required to cease all collection efforts, this includes garnishments, lawsuits, letters and calls.

On the other hand, the rules concerning the discharge of debts in bankruptcy filed under chapter 13 are more liberal. Chapter 13 bankruptcy is commonly known as a super discharge because the scope of discharge is much broader. For a debtor who works closely with his Local Bankruptcy Attorneys MyBKHelp and successfully completes his Chapter 13 plan, most debts are dischargeable, potentially without any payment. However, there are several debts which will not be released or discharged. This includes non-dischargeable tax claims, fraud claims, child support and alimony obligations, student loans, unlisted debts, conversion, theft or breach of fiduciary duty or drunk drivers causing death or injury as well as malicious and willful injury causing personal injuries or even death to another person.

Even though the above stays may sound and look alluring for someone who is heavily in debt, filing for bankruptcy is usually not the best alternative for all debt related problems. This is because as any bankruptcy lawyer will attest, it will be almost impossible for someone who has been declared bankrupt to ever get credit in future since the bankruptcy status remains in your credit report for between eight and ten years. The process is also tedious, time consuming and involves some significant financial implications. One needs to get the services of a trustee and also those of a qualified bankruptcy lawyer; these cost money which is usually in short supply for the debtor.