Declaration of bankruptcy stops the creditor from harassing you over the debts that you owe them. The moment you file for bankruptcy, the court stops the creditors from collecting any money from you. However, for the loans that you had secured with properties, the creditors are allowed to repay themselves with them.
The legal proceeding investigates your financial situation. If you are declared bankrupt, all the debts are written off. This forces the creditors to stop demanding money from you. They can not claim any payments from you even if you get a good income in future.
For you to be granted freedom from the debts, you have to give all non-exempt assets to an appointed trustee. Usually, the trustee is chosen by the court; they sell all your assets and give all the money to the creditors.
You could be punished for hiding some of your properties. Make sure that you do not try to transfer some of the property before you file for bankruptcy. There are some debts that can not be discharged like student’s loan, child support, taxes and alimony. If you are found to have incurred a debt through fraud, you also have to pay it back.
You can choose the kind of bankruptcy you want depending on the amount you owe your creditors. The type of assets that you own also determines the type of bankruptcy you can file for.
There is liquidation whereby the debtor gives all their property to the trustee. The law allows the debtor to remain with small part of their property. Then you are discharged all the debts except the ones that the law does not allow. The creditors can only be paid with sale of the assets held by the trustee. They are not allowed to take anything from the debtor after they have been declared bankrupt.
There is the law that permits the debtor to pay the creditors with their future income. The debtor keeps most of their property and does not go into liquidation. This is mostly suitable for the people who have unsecured loans. The debtor makes a plan on how they wish to pay the debts and presents it to the trustee, creditors and the bankruptcy court.
There is also another chapter that involves corporate debtors. This helps the debtor to stay in business and keep their assets under the supervision of the court.