When one has gone bankrupt, there is a bankruptcy process which is a legal process that can be undertaken. The process is mostly initiated by the debtor whose assets get evaluated. Debtor assets are used to repay part of the debts and after the proceedings are done, the debtor is relieved of any debts that were outstanding before filing for a bankruptcy.
Before filing, you should ensure that it is the only option left. It will affect your credit rating for many years to come. It will make it difficult for you to manage bank accounts and credit cards, can lead to the loss of the interest on your home or even make it difficult to contract a job. It is considered by most as a last resort after all other options like credit counseling, budgeting and any other options have failed.
In the U. S there are two bankruptcy options for individuals. They fall under chapter 7 and chapter 13 of the law of bankruptcy. According to chapter 7, if there are unsecured debts, they will be cancelled right away. Mostly it is called liquidation. The trustee to the debtor can sell assets belonging to the debtor to pay all the creditor claims. Alternatively one can admit to paring back the debts according to chapter 13. This has to be however approved by the court that will oversee the whole process.
The first step is contacting a credit counselor or a lawyer. The lawyer will ask you all relevant questions and help you complete a means test that ensures that there is a certain amount that your income does not exceed. He/she will help you decide the best steps to take and then file the appropriate papers to the court.
Once you retain a lawyer, the lawyer will then handle all your creditors. After your case is filed, no creditor should contact concerning your debts. You will now be protected by something known as an automatic stay and there may be a penalty to your creditors it they go against it.
A trustee is usually assigned once the process has started. His/her work is to make a follow up on the information submitted by the debtor. Then all asset involved in the case are collected and sold. Sales proceeds collected and used to cover the debts owed. This has to be done under the overview of the court.
A discharge can be made by the judge after it is confirmed that information given is true to the core. Creditors will have to be called meeting to confirm that what the debtor is saying it correct. One has to also meet the terms of the court to be able be issued with a discharge.