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More About Bankruptcy: Continued
Automatic Stay
The automatic stay occurs at the moment a bankruptcy petition is filed. The automatic stay generally prohibits the commencement or enforcement of actions, judicial or administrative, against a debtor for the collection of a claim that arose prior to the commencement of the case. The stay also prohibits collection actions aimed at property of the estate itself.
The most frequent types of personal bankruptcy for individuals are Chapter 7 and Chapter 13.
In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. In exchange, the debtor is entitled to a discharge of debt, except that the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behavior (e.g. concealing records relating to financial condition) and except that some debts (e.g. spousal support, some taxes) will not be discharged. Many people in financial distress own only exempt property (e.g. clothes, household goods, an older car) and will not need to surrender property to the trustee. Generally, the rights of secured creditors to their collateral continues even though their debt is discharged (e.g. absent some arrangement by a debtor to surrender a car or "reaffirm" a debt, the creditor with a security interest in the debtor's car may repossess the car even if the debt to the creditor is discharged).
In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her earnings to repaying creditors, usually over a period of three to five years. The amount of payment and the period of the repayment plan depend upon a mixture of factors, including the worth of the debtor's property and the amount of a debtor's income and expenses. Secured creditors may be entitled to greater payment than unsecured creditors
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