Bankruptcy is a process in which a debtor – individual or business – is able to discharge or restructure debts they are currently unable to pay to their lenders. What was once a process to which a negative stigma was attached by creditors seeking to reclaim what they were owed, filing for bankruptcy has since become a very popular and common solution to many a debtor’s financial woes. Bankruptcy can reduce, if not completely eliminate a person’s debts, freeing them from their financial obligations and affording them a fresh start. For most individuals, there are two types of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 – Personal Bankruptcy: Chapter 7 Bankruptcy is used by individuals to discharge their credit card debt, personal loans, and other claims and to obtain a “fresh start.” Under Chapter 7, a person usually retains their exempt property such as their homestead and certain personal property and retirement benefits.
Individuals considering seeking bankruptcy relief under Chapter 7 must demonstrate their eligibility under a means test. The means test is among the most complex aspects of the bankruptcy process. Essentially, the means test involves comparing your income to a family the same size as yours in your state. If your income falls below the median amount, you can usually file for Chapter 7 bankruptcy. If your income is higher than the applicable median, a calculation of your monthly expenses, income, and debts is used to determine whether you can file under Chapter 7.
Generally, those individuals who are ineligible for Chapter 7 bankruptcy are eligible for a Chapter 13 repayment plan.
Chapter 13 Bankruptcy
Chapter 13 – Personal Reorganization: Chapter 13 Bankruptcy is used by individuals to reorganize or discharge their debt. Under Chapter 13, individuals enter into a court-approved payment plan to pay off their debtors in an amount that they can afford. As long as you comply with the terms of the payment plan, your creditors must cease all collection efforts. Once the payment plan has been completed, any remaining debt is extinguished. Chapter 13 is typically used to stop foreclosure and catch home mortgages up-to-date and to reduce debt. In Chapter 13 you may be able to wipe out a second mortgage that is wholly “under water.”
Expertise in Bankruptcy Law
If you are contemplating filing for bankruptcy, attorney Mark Herron will walk you through the process to determine what the best options are for you, including whether there are options other than bankruptcy for you to deal with your debts. Call today for a free consultation.