You may have decided that you need to file for bankruptcy, but that doesn’t mean that it isn’t scary. If you find yourself fearing the process, remember that bankruptcy laws are there to protect you. You have options even in the midst of impossible financial trouble. Once you’ve decided to file bankruptcy, the process is fairly straight forward.
What Type of Bankruptcy? Once you decide to seek the protection of bankruptcy, you need to decide what type of bankruptcy you will file. Most choose either Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Chapter 7 bankruptcy is often called a “liquidation” bankruptcy, which just offers a description of what it offers petitioners. The Chapter 7 or liquidation bankruptcy offers a discharge of debt. The discharge includes most unsecured debt, including personal loans and credit cards. Consumers interested in filing Chapter 7 bankruptcy must pass a “means test,” have a certain amount of income, and might be required to sell non-exempt assets. In most cases, Chapter 7 filers are able to keep most, if not all of their assets. The entire bankruptcy process for a Chapter 7 bankruptcy lasts from 3 months. However, some filers will not be eligible for Chapter 7 bankruptcy because their income is too high.
Chapter 13 bankruptcy is often called a “reorganization” bankruptcy. Again, the alternate name simply refers to how this type of bankruptcy works. The Chapter 13 bankruptcy sets filers up on a repayment plan in order to pay back creditors over time. No property is required to be liquidated during the Chapter 13 bankruptcy process. The Chapter 13 bankruptcy process lasts from 3-5 years due to the repayment period. In order to be eligible to file Chapter 13 bankruptcy, consumers need to have consistent income so they can manage the monthly payments for the repayment plan. Consumers who want to protect their non-exempt assets often look to Chapter 13 for what they need. Today, the most common usage of a Chapter 13 is: when they do not qualify for Chapter 7; when they want to repay their mortgage arrears and keep their home; and when they want to pay off tax debt.