If you’ve tried all other routes to financial freedom, only to fail, and if your debts have become too much of a burden to handle, you may have started to look into filing for bankruptcy.
What is Bankruptcy?
Bankruptcy is the legal process of eliminating your debts. The following is essential bankruptcy information about the four different types of filings:
Chapter 7 Bankruptcy:
This is the most common type of bankruptcy, filed by either individuals aka personal bankruptcy (called consumer) or businesses. It is essentially property liquidation that takes only a few months. All unsecured debts credit card, medical, or other are erased in Chapter 7 personal bankruptcy. There are many exemptions which depend on state and federal laws. If you have secured debt, that property may be repossessed or you may pay a lump sum toward the value. Most people who file for Chapter 7 bankruptcy have nothing to lose. If you have sufficient enough income, you won’t be eligible for this type of liquidation bankruptcy.
Chapter 11 Bankruptcy:
This type is mostly for businesses and involves a reorganization plan to pay off debts. In Chapter 11 bankruptcy, most assets are kept and the business continues to function. This is the most costly, complex, and time consuming filings for bankruptcy, and it is only recommended with the advice of a professional bankruptcy lawyer or attorney.
Chapter 12 Bankruptcy:
This type is restricted to those whose main income comes from farming or fishing. Filing for Chapter 12 bankruptcy is very rare, but it gives people the ability to get rid of liens and has higher debt limits.
Chapter 13 Bankruptcy:
Also known as wage earner bankruptcy, Chapter 13 requires you to have a substantial income. This type involves a repayment plan and can last anywhere from three to five years. You will repay only a fraction of what you owe, and that amount is determined by a number of factors, including your income and the size of your debts. There are limits to how much secured and unsecured debt you can owe to file for chapter 13 bankruptcy. If your debt exceeds the limits, you may have to file for bankruptcy under Chapter 11 instead.
How to File for Bankruptcy
Before making the big decision, you may want to consult with a bankruptcy attorney. There are many important rules and exceptions to those rules, it may be very beneficial to talk to a bankruptcy lawyer who would know the specific bankruptcy laws of your state. Bankruptcy laws can determine what possessions you can or cannot keep, which debts will stay and which ones will be wiped clean, and most importantly whether or not you are a candidate for bankruptcy.
If you’ve decided to file for bankruptcy, you’re going to need some basic bankruptcy information to help you get started:
- Make sure you’ve ruled out every other alternative.
- Stop using your credit cards! Any activity documented after you have intended to file can be used against you in the future.
- Find a professional lawyer who practices bankruptcy and one that is familiar with the specific bankruptcy laws of your state.
- Consult with your lawyer to decide what chapter is best for your situation
- Find out the cost of filing as well as the cost of your lawyer, which is usually based on the filing fee.
- Refer your creditors to your lawyer and wait for the automatic stay to go into effect. This ensures that no creditors may contact you about your debts.
- Meet with your creditors, often called a 341 meeting, to discuss your agreement to file for bankruptcy. Your bankruptcy lawyer should meet with you beforehand to go over all the questions.
- If you’re filing for Chapter 7, your assets will be evaluated according to state and federal law, then liquidated to pay back your debts.
- If you’re filing for Chapter 13, you will have to submit a repayment plan which can cover up to five years. Make sure you don’t fall behind on these payments, or you may be at risk for losing even more.
- And, last but not least, spend wisely in the future!
You now know that bankruptcy is divided into different Chapters. If you wish to file as an individual (personal bankruptcy) you can do so under chapter 7 or chapter 13. When you are troubled with debt, understanding the process of filing for bankruptcy, may not be what you need to focus your time on.
A professional bankruptcy attorney will be able to answer all of your questions and also be able to guide you through the full bankruptcy process. A bankruptcy attorney may practice in only one or many types of bankruptcies/chapters. Click here to find a bankruptcy attorney.