Bankruptcy is a legal process that provides individuals and businesses with a way to manage or eliminate debt. There are several types of bankruptcy, each designed for different financial situations. If you’re considering bankruptcy, you may find it helpful to understand your options.
Chapter 7 bankruptcy
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” is the most common type for individuals with significant debt. It allows for the discharge of most unsecured debts, like credit cards and medical bills.
In this process, a court-appointed trustee oversees the sale of non-exempt assets to pay creditors. Most people who file for Chapter 7 bankruptcy don’t have enough assets to be sold off, meaning they can often keep their property. The goal of Chapter 7 is to give individuals a fresh start by wiping out most of their debts.
However, not all debts can be discharged. For example, student loans, child support and taxes typically cannot be eliminated through Chapter 7. Eligibility for Chapter 7 depends on your income and whether it meets the means test, which assesses your ability to repay a portion of your debts.
Chapter 13 bankruptcy
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” is for individuals with regular income who want to keep their property but need a structured plan to pay off debt over time. Unlike Chapter 7, Chapter 13 doesn’t involve liquidation of assets. Instead, it involves creating a repayment plan that lasts between three and five years.
Under this plan, you pay a portion of your debts each month, and at the end of the plan, any remaining unsecured debt may be discharged. Chapter 13 allows individuals to catch up on missed mortgage payments and avoid foreclosure, making it a popular choice for homeowners.
How do you choose the best option for you?
Clearly, numerous factors of your unique financial situation go into the decision making process. It is wise to seek the advice of a skilled legal professional. An experienced bankruptcy attorney can thoroughly examine your needs and provide guidance specifically tailored to you. Each chapter offers different benefits and challenges, so it’s essential to choose the one that best meets your financial needs. As soon as you begin to fear financial hardship, it is crucial that you take immediate action to protect your family and your future financial security.