For the average consumer, bankruptcy is something of a mystery. Most Michigan residents are aware that filing for personal bankruptcy is an option, but there is a great deal of misinformation and misunderstanding about the process and its pros and cons. Bankruptcy offers a path to debt relief, but it is a serious decision that should not be made without full understanding of the process.
At a base level, bankruptcy is a legal procedure by which individuals who are insolvent can be released from some of their debts. In order to be considered insolvent, a person must hold debts that total more than the value of their assets. Assets can include money, investments and personal property of high value, such as vehicles or real estate. Debts include loans, tax debt, credit card balances and personal debts.
When an individual makes the decision to pursue bankruptcy relief, he or she 'files' for bankruptcy with the courts. A bankruptcy trustee is then appointed, who will coordinate the process, and in some cases, supervise the sale of assets to repay certain debts. When unsecured debts are eliminated through personal bankruptcy, this process is known as a 'discharge' of debt.
While bankruptcy can lead to the elimination of a large portion of a consumer's debt load, there are certain types of debts that cannot be discharged through bankruptcy. Examples are tax debt, student loan debt and child support obligations. However, the bankruptcy process can eliminate other debts, such as loans or credit card debt. This can free a Michigan resident's personal finances and make it easier to pay any remaining accounts.
Source: Santa Barbara Independent, "Understanding Bankruptcy: Part 1 of 7," Harley Hahn, April 8, 2013