The challenging economy has forced many families to consider filing bankruptcy as a way to get their financial woes behind them.  While it is not a remedy anyone should consider except as a last resort, bankruptcy does give families the opportunity to start over financially.

Bankruptcy is intended to give debtor families a "fresh start", in the words of the Congress.  One cannot have a fresh start if the process strips families of the proverbial shirt of their backs.  Debtor families, therefore, are given exemptions, allowing them to keep some assets.  The amount of the exemptions is based on state law.  the exemptions the law provides are to secure for these families minimal assets so they can be successful in rebuilding their financial and personal lives.

The Bankruptcy Reform Act was passed in 2005.  This Act provides various standards to require families to seek credit counseling before they can file bankruptcy.  the belief is that counseling, possibly, could stave off the necessity of filing bankruptcy.

Experience shows that families which seek confidential credit counseling early can often avoid bankruptcy.  A well regarded counseling group in our community is Consumer Credit Counseling of Forsyth, a United Way agency - (336) 896-1191, toll free in North Carolina at (888) 474-8015, or www.cccsforsyth.org).  Its counselors can often work with creditors, even if a debtor is in foreclosure, to chart a pathway out of financial troubles.

If a family does file bankruptcy, the family has to receive additional counseling before they complete the process to help equip them to handle their finances differently when they come out of bankruptcy.

The two forms of bankruptcies most families choose are a Chapter 7, "straight" bankruptcy, and a Chapter 13 bankruptcy, commonly called a "wage earner's" plan.  The chapter numbers are simply the chapter numbers in the bankruptcy laws.

In a "straight" bankruptcy, the debtor family is not able to repay its debts, and most of the family's debts, most specifically general, unsecured debts, such as credit card debts, are canceled or discharged.  Many debts, such as mortgages on one's home, secured loans on one's motor vehicle, taxes, alimony, child support, and others, are not discharged, however.

As noted, the debtor family may exempt, or keep, certain items or property.  The assets which are exempt from creditors include a certain dollar amount of the value of one's home, motor vehicle, clothing, household furnishings, tools of one's trade, most retirement accounts, and others.

Once the process is completed, the unsecured general creditor claims are discharged, which means the debtor family does not owe these debts any more.

A Chapter 13 "Wage Earners" Plan allows a debtor family to pay part of their income over a three to five year period to their creditors.  The plan, which requires court approval, provides for repayment of some or all of the debtor family's debts, depending on the amount of family income and the amount of assets the family owns.

The Chapter 13 Wage Earner Plan is the primary form of bankruptcy chosen by debtors which are behind on their mortgage payments.  While the court in a Chapter 7 bankruptcy can stop a foreclosure proceeding, ultimately creditors can, with court permission, proceed with the foreclosure proceeding.

In a Chapter 13 proceeding, however, the court can, under most circumstances, require the creditor to allow the debtor family to catch up its house payments while keeping up with their regular payments.

The North Carolina Bar Association publishes a free pamphlet on bankruptcy.  It can be downloaded from the web site at www.ncbar.org, or call (919) 677-0561.  They are also generally available without charge at public libraries.