Discharge Debt and Start Fresh

Bankruptcy Basics

Bankruptcy is a legal process that permits insolvent people or businesses to wipe out their debts and start fresh. Bankruptcy proceedings are governed by federal law and take place in the U.S. Bankruptcy Court. In Sacramento, this court is located at 501 I Street (www.caeb.uscourts.gov/).

Individual debtors may give up assets to pay their creditors as much as possible (Chapter 7 “liquidation”), or may set up a repayment plan (Chapter 13). Other chapters apply in specialized situations. Upon filing, the debtor immediately benefits from the “automatic stay” (an injunction that stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed).

After a successful Chapter 7 bankruptcy, the debtor’s debts are “discharged” (the debtor is no longer required to pay them). A bankruptcy stays on the debtor’s credit rating for up to 10 years, and some debts, such as child support, taxes, and student loans, normally cannot be discharged. However, some assets are exempt from being liquidated (for example, pensions and 401ks; homes and cars without equity; and the basic means of day-to-day living.)

You can find books on bankruptcy in our self-help and general collections at call numbers KF 1524-KF 1527:

For more information, including forms, videos, and free legal assistance groups, visit our Law 101 page on Debt and Bankruptcy.

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