Bankruptcy is a legal process where someone who can no longer pay their debts files a petition with a federal court, allowing them to discharge their debts and keep their assets (within certain dollar limits) or create a repayment plan to manage their debts, essentially giving them a “fresh start” by discharging some or all of their outstanding debt; this process is governed by federal law and handled by a bankruptcy court, with the debtor providing detailed information about their assets and liabilities to a court-appointed trustee who then distributes any available funds to creditors according to the bankruptcy code.
Bankruptcy Information
Key points about bankruptcy:
The first step is filing a petition with the bankruptcy court, which includes a list of all assets and debts owed by the debtor.
Individuals usually choose between Chapter 7 (for debtors with limited income and the value of assets below a certain amount allowed by the State of North Carolina statutes, depending on the category of the property and the value of each category of property), or Chapter 13 (reorganization) where a repayment plan is created to manage debts over time. (3 to 5 years, depending on your situation).
A court-appointed trustee reviews the debtor’s financial information, holds a creditors’ meeting, and oversees the repayment plan, if applicable.
If the court approves the bankruptcy, the debtor receives a discharge, meaning they are no longer legally obligated to pay their discharged debts.
Filing for bankruptcy can significantly improve a debtor’s financial position, because after the discharge of debt, the debtor’s “debt-to-income ratio” typically vastly improves, which normally makes the debtor a better credit risk after bankruptcy rather than owing tons of debt prior to bankruptcy; which typically results in a gradual increase in the debtor’s credit score as long as all payments are made to post-petition creditors “ON TIME AS AGREED”.
Important considerations:
Some debts like student loans, certain taxes, alimony, and child support are usually not discharged in bankruptcy.
Due to the complex nature of bankruptcy law, it’s crucial to consider consulting with a bankruptcy attorney before filing.