If you are overwhelmed by stacks of bills and cannot honestly cope with them, don’t despair. Bankruptcy offers legal help, providing you haven’t used it in the past 6 years and haven’t hidden or given away assets in the past year to keep them from your creditors. With the advice of a lawyer, you can choose between two types of bankruptcy: liquidation, or straight bankruptcy, and rehabilitation.
To begin proceedings, you must file forms with the clerk of a US. bankruptcy court and pay a fee. The clerk can direct you to the proper forms.
Bankruptcy doesn’t rid you of all your debts. You are still generally responsible for taxes, government backed student loans, alimony, child support, and damages (money won in a lawsuit) for deliberate and malicious injuries or fraud caused by you. If you omit a debt from the forms you file, you remain liable for it. Liquidation
Under liquidation, all your property is sold except for certain things deemed necessary for a reasonable life-style and for your work. (For example, Social Security benefits, an inexpensive car, and tools are exempt.) The court postpones any lawsuits on your unpaid bills, and your creditors must meet you in court to show that they are entitled to the proceeds of the sale.
A trustee handles the sale and sees that your creditors receive their fair shares of the proceeds. You are no longer responsible for those bills, whether your creditors are paid in full or receive only a fraction of what you owe. Rehabilitation
If you have a regular income, you may use rehabilitation proceedings rather than liquidation. Sale of your property is not required. You need only reach an agreement with your creditors to repay your debts up to a certain amount (either all or part of what you owe) on a monthly timetable.
The court supervises this arrangement, and 10 percent of each payment goes to the court for administrative expenses. Credit bureaus can report either type of bankruptcy for up to 10 years, but lenders generally think better of a creditor who pays off his debts rather than liquidating them.