There are two basic types of bankruptcy: voluntary and involuntary. In case of voluntary the debtor files a petition at the County Court, and the judge can grant it or can refuse it. This procedure involves some costs too: there is a court fee and an additional fee. People who are in unemployed or have a low income may not have to pay the court fee, but they still have to pay the additional fee, which is the bigger sum from the two. In case of involuntary bankruptcy any creditor can file a petition against the debtor, and once again the judge may grant it or not. There are two popular types: Chapter 7, which is a liquidation and Chapter 13, which is a repayment plan for individuals. Many people hire a lawyer to help them with their bankruptcy case, but it is possible to file for it without a lawyer’s help too.

There will be a specific meeting, which is usually called the 341 Meeting or Meeting of Creditors. This is a meeting between creditors and debtor, and usually a judge is not present on it, but the debtor should prepare well, because he will be asked questions based on the filed petition. The debtor should be prepared with several documents like bank statements, copies of tax returns, and an appraisal of the home and so on. In many cases it is possible that creditors will not appear on this meeting, especially if it is the case of unsecured debt. In this case it is highly likely that the debtor has no more money to pay them, and they would rather write off the debt than go to court and not get anything in return. In case of secured debts creditors will appear on this meeting. After all this is done, the debt the debtor cannot afford to repay (even with selling his assets) will be written off and the debtor will be discharged from bankruptcy, usually in one year after filing for it.

Now let us see the advantages of bankruptcy. The debtor is protected by law from any legal action of the creditors; the debt he cannot afford to repay will be written off at the end of the period, the debtor will have a chance for a fresh start after this is over. There are disadvantages too, we should discuss them too. The biggest disadvantage of bankruptcy is that the debtor might lose his home and the proceeds will be divided between the creditors. But there are other disadvantages too: it is a public matter, so it will be advertised in the local newspaper; the debtor will not be able to have certain functions, like company director, local governor and so on. This solution will affect the debtor’s credit rating from 6 to 10 years, so it is possible that he will not be able to obtain credit for a while. Although it might seem that it has many negative effects and only a few positive ones, the biggest advantage is that the debtor will become debt free even if he is incapable to repay all his debts, after the bankruptcy is discharged.

Before filing bankruptcy a debtor should consider the other options too, they might be less scary and in some cases an Individual Voluntary Agreement is enough, it is not necessary to file for it. But when a debtor has to file for bankruptcy, it is best if he hires a lawyer that gives him an extra chance to succeed. In every case, it is important to understand how these procedures work, but it is also important to understand the effects, like losing a house or a car and not being able to have credit for a few years.