Bankruptcy is a legal process that helps consumers and businesses deal with overwhelming debt. It can wipe out or reduce credit card balances, medical bills, personal loans and other unsecured debt. It can also stop debt collection calls, mortgage foreclosure, car repossession and wage garnishment. 

It can also help reorganize a company under Chapter 11. However, bankruptcy information stays on your credit report for 7-10 years. 

What is Bankruptcy? 

Bankruptcy is a legal status that allows people who are insolvent to restructure their debts or get a fresh start. It is a process regulated by federal law, known as the Bankruptcy Code. Individuals may file Chapter 7 bankruptcy to liquidate assets or Chapter 13 bankruptcy to work out a repayment plan. Municipalities, taxing districts, and utilities may file Chapter 9 to reorganize. 

Most of the time, a bankruptcy case involves selling off assets to repay creditors. However, some possessions are exempt, such as household furniture and appliances, tools of the trade, and vehicles up to a certain value. A bankruptcy also does not impact secured debts, such as mortgages and vehicle loans. Nor does it eliminate liens placed on property by government agencies, such as the tax lien for unpaid income taxes. 

Sometimes, companies prepare a bankruptcy reorganization plan and have it voted on by creditors and stockholders before filing for bankruptcy. This is called prepackaged bankruptcy and it can save money. 

What are the Benefits of Bankruptcy? 

A key benefit of bankruptcy is that it temporarily halts all creditor actions to collect debt. This includes repossession, foreclosure, lawsuits and wage garnishment. It also enjoins liens and levies on property. In some states, the automatic stay also stops utility companies from cutting off service. 

Bankruptcy eliminates most unsecured debts and makes it easier to pay bills. It does not wipe out all types of debt, however; there are some debts that are nondischargeable, including child support, alimony, most student loans and certain taxes. 

Filing for bankruptcy can help you get back on your feet financially and start to regain control over your finances. However, a bankruptcy will appear on your credit report for up to a decade. This can make it difficult to obtain new credit, and lenders may offer you higher interest rates or less favorable terms than you would receive otherwise. It is important to begin rebuilding your credit right away and to develop healthy spending habits. 

What are the Consequences of Bankruptcy? The most obvious consequence is that bankruptcy ruins your credit. The information

about your bankruptcy will be in your credit report for up to 10 years, making it hard to buy a home or car, obtain a loan or open new bank accounts. Creditors may also refuse to work with you if your bankruptcy is reported. 

If you file for Chapter 7, your trustee will sell off most of your assets to pay creditors. Some assets are exempt from sale, including Social Security payments, unemployment compensation, some equity in your home or trade tools, and some household goods. 

Some debtors who are able to continue working may choose Chapter 13. This process allows them to keep their property and repay some or all of their debt over three to five years. Companies in financial trouble may use Chapter 11 to reorganize their business. Sometimes a company prepares a plan and asks creditors and stockholders to approve it before actually filing for bankruptcy, a process known as prepackaged bankruptcy. 

What are the Alternatives to Bankruptcy? 

There are a number of bankruptcy alternatives, including debt consolidation. This could be done through a 0% balance transfer credit card or with a personal loan from a bank or credit union. However, it is always advisable to meet with a nonprofit credit counselor or financial advisor before taking this route. 

Personal budgeting, negotiating with creditors and debt settlement is also possible to get financial benefits that can be used to pay off unsecured debts. However, a Harrisburg bankruptcy lawyer can help you with the legal process of bankruptcy and how it may help your situation.