While most folks understand that working with a bankruptcy attorney has something to do with dealing with their debt, they're not always clear on what the goals are. Let's examine why someone might hire a filing bankruptcy attorney and ask the court for help.

Two Somewhat Differing Goals

First, there are two kinds of bankruptcies, and each has its purpose. There is liquidation, and there is restructuring.

Liquidation

Liquidation is an option that's available to both individuals and organizations. The liquidation process is largely codified in Chapter 7 of the federal bankruptcy code. If you're liquidating your assets, that means that pretty much all non-essential property you own will be sold. Essential items mean things like a place to live, a practical vehicle to get to and from work, cloths, and kitchen wares. Also, a trustee may determine the value of some items is so low as to not be worth the bother, such as a smaller and older TV.

The proceeds of the sales will pay off as much of what you owe your creditors as possible. Once that's over, a court-appointed trustee will confirm that the sales are finished and tell the judge to discharge your remaining debts.

Restructuring

Chapter 11 bankruptcy covers restructuring debts for businesses, while Chapter 12 covers farms, and Chapter 13 covers individuals. Each has some slight differences to address the unique situations parties in those circumstances might encounter.

When restructuring your debts, the court will require you to submit a plan explaining how you mean to pay your creditors. In exchange for promising to do so, you'll be given somewhere between three and five years to get the job done. Also, the restructured debt load is usually reduced by something like 20% to make it more likely the debtor can actually do the job. If you pay everything off according to the schedule, the court will discharge the remaining debts.

The Importance of Filing the Right Way

It's critical to make sure you handle the filing process competently. Foremost, this is because failing to name particular parties as creditors will allow unnamed ones to still pursue the collection of debts. Secondly, you want to make sure you're eligible to seek bankruptcy under the section you've chosen.

Debtors must accurately represent all of their assets, liabilities, and income sources, too. Failing to do so may be interpreted as fraud, possibly leading to the dismissal of the petition. In egregious and willful cases of misrepresentation, criminal charges can be filed.

For more information on filing for bankruptcy, talk to a bankruptcy attorney in your area.