What is bankruptcy?

Filing for bankruptcy may ease Arizona residents' financial obligations, but what exactly is bankruptcy?

Bankruptcy is a set of federal rules and laws that may be sued by people who owe more debt than they can pay. Bankruptcy courts are separate from other courts and debtors file for bankruptcy in federal bankruptcy court, as only federal courts have jurisdiction over bankruptcy matters.

Throughout bankruptcy proceedings, the petitioner either liquidates his or her assets and pays the debts or works on a plan to repay the debts over time. The procedure for these options is found in Title 11 of the United States Bankruptcy Code, with the three main types of bankruptcy being located in chapters Chapter 7, 11 and 13.

Bankruptcy laws exist to protect both debtors and creditors. These laws protect debtors by offering them a fresh start and relieving them from most or all of their debts. At the same time, creditors' debts are paid back as much as possible, to the extent of debtor's available and eligible property.

Once a debtor files a petition with the bankruptcy court, it automatically issues an order that stays all debt collection actions by creditors. This means that creditors cannot continue to pursue or bring new suits against the debtor and his property, for as long as the stay remains in effect. The stay also prevents creditors from making phone calls or using other harassing measures with respect to the debt.

Where the debtor's eligible property is liquidated to meet debts, debts are usually discharged quickly, without any objection from creditors. A discharge of debts means that the debtor is no longer liable for repaying those debts.

A debtor must submit a statement of assets, income and liabilities, as well as the names and addresses of all creditors and how much is owed to them with his or her bankruptcy petition. To ensure that the process goes smoothly, debtors must provide accurate statements and complete their paperwork on time. An experienced bankruptcy attorney may be able to guide Arizona residents throughout the bankruptcy process and help them achieve the fresh start they desperately want.

Source: United States Courts, http://www.azb.uscourts.gov/understanding-bankruptcy, accessed Feb. 3, 2015

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