What is Bankruptcy and How Does it Work?


Bankruptcy is a legal process that allows people or businesses to have some or all of their debts forgiven. This can be a good solution for people who are overwhelmed by debt and cannot afford to pay it back.

However, it is important to understand how bankruptcy works before deciding if it is the right choice for you.

Defining Bankruptcy

Bankruptcy is a legal process in which individuals, businesses, or organizations that have been unable to pay their debts are given an opportunity to restructure their finances and/or repay their creditors over time.

This can be done through several options, such as by restructuring existing debts or negotiating settlements with creditors.

In a Chapter 7 Bankruptcy filing, certain assets may need to be liquidated in order to repay creditors.

In a Chapter 13 Bankruptcy filing the individual or business debtor agrees to a repayment plan over 3-5 years.

Either way, bankruptcy provides debtors with the opportunity to start fresh financially and address financial concerns that may have previously seemed insurmountable.

How to File for Bankruptcy

Learning what bankruptcy is and how it worksFiling for bankruptcy can be an overwhelming process and one that should not be taken lightly.

Hiring a skilled bankruptcy attorney is the best course of action as they can guide you through all the steps. Their familiarity with the legal system ensures there are no mistakes when it comes to filling out the proper forms, understanding your options in terms of what bankruptcy chapters are available to you, and navigating other complex legal proceedings associated with this financial decision.

Assessing your financial situation along with an attorney’s help is always a wise approach before filing for bankruptcy.

Types of Bankruptcy

When an individual or business finds themselves in financial hardship, bankruptcy may be an option to consider in order to satisfy their debts.

Bankruptcy is a legal process, designed to provide relief from overwhelming debt and allow a fresh start, with different types depending on the situation.

Chapter 7 is usually associated with individuals as it offers a way for assets to be liquidated for repayment of creditors.

On the other hand, businesses often utilize Chapter 11 to restructure debt and remain in operation if at all possible.

Chapter 13 involves an evaluation of your financial situation and setting up a payment plan to repay some or all of the debt over time.

It is important to seek legal advice should there be questions on which type of bankruptcy is best suited to one’s circumstances, as selecting the wrong option could have more detrimental consequences than helpful ones.

What is Protected in Bankruptcy

Filing for bankruptcy can be a stressful process, but it is important to note that certain assets are still protected.

In most cases, necessary items such as clothing, furniture, vehicles necessary for work or school, and tools used for business are exempt from being liquidated.

It is recommended to meet with an attorney to ensure that all of the permitted exemptions will be established and that other assets may be protected. For example, in some states, a person’s home might qualify for protection when filing for bankruptcy.

Ultimately, attorneys can guide the individual through the process and inform them of their rights under the current bankruptcy system.

Bankruptcy and Your Credit Score

Bankruptcy has a significant impact on your credit score and can remain on your credit report for up to 10 years.

It is seen as a sign of financial instability by lenders and creditors, which makes it very difficult to borrow money or receive favorable interest rates if you decide to pursue new lines of credit.

Bankruptcy can remain on your history even if you’re able to pay off all the debts listed in the filing.

When considering bankruptcy, individuals should also keep in mind that it will raise their taxes if they are a homeowner, rescind any asset protection offered by limited liability companies or trusts, put future employment at risk due to background checks required for many positions, and can potentially terminate child support payments.

Rebuilding Your Credit After Bankruptcy

Rebuilding your credit after bankruptcy may seem impossible, but with the right guidance it is within reach.

To get started, seek out a legal attorney or credit counselor with experience in bankruptcy to understand your options and create a plan that works for you.

Consider consulting someone who can provide financial education services, as well as assistance identifying employment opportunities, budgeting strategies, and debt management solutions.

Remember to stay proactive about building your credit by paying bills on time, keeping balances low on credit cards, and using every opportunity possible to supplement and diversify your total credit portfolio.

With a little effort, you can rebuild your credit and put yourself back on the path to financial success.

If you are considering filing for bankruptcy, it is important to understand the different types of bankruptcy and what assets are protected. Although bankruptcy will have a negative impact on your credit score, there are steps you can take to rebuild your credit after bankruptcy.


Learn More

At Blue Bee Bankruptcy, our lawyers are highly experienced in the foreclosure and bankruptcy filing options. More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.

We strive to help our clients rebuild their lives and take steps toward a better financial future through filing. 


Best Bankruptcy Attorneys in Salt Lake City

If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.

Get in touch today so we can start working on either halting bankruptcies or preventing them from taking place altogether!

Contact Us Today For Help! You can schedule your free consultation online or call us at (801) 285-0980.


Blue Bee Bankruptcy Law Firm

Rebuild Your Life After Bankruptcy
Get FREE information on rebuilding your credit.
Start Today