Filing bankruptcy is the cause of a lot of apprehension and confusion. Many people believe they will lose everything they own if they file for bankruptcy, while others think they can keep everything but still get rid of the debt. The truth, however, is not that black and white. It depends on the bankruptcy laws that are applicable to you and your unique situation. Let’s discuss some basics of personal bankruptcy, although you’re advised to seek professional guidance from bankruptcy attorneys.
What Are the Facts?
Bankruptcy is a process used by federal courts to repay or eliminate the consumer debts that are under the bankruptcy court’s protection. The purpose of filing for bankruptcy is to give you a fresh start and give you a chance to get your financial situation under control. It’s also designed to give fair treatment to creditors. This simply means that all your debts will be included in the bankruptcy process, and you can’t pick and choose.
In bankruptcy, a trustee will manage your case throughout the entire process and you’ll have to meet the trustee at least once. There are two main types of personal bankruptcy. These bankruptcies can address your personal consumer debt including medical bills, personal loans, and credit cards as well as the business debts that you took personally.
Also known as liquidation bankruptcy, chapter 7 can involve the selling of your non-exempt assets to repay creditors. Non-exempt assets are items that are not protected under the bankruptcy laws applicable to you. Typically, you’ll apply for chapter 7 bankruptcy if you don’t own more assets than you can protect. If that’s your situation, then you can pay off or consolidate debt without losing any of your assets. Rules say that you can receive only one chapter 7 discharge every 8 years.
Chapter 13 is known as the reorganization or repayment bankruptcy. In this case, a plan can be filed for the repayment of your debts to the creditors by the bankruptcy court. Some debts are paid full, some are partially paid and some are even dismissed with no payment. Chapter 13 payments can run from 3 to 5 years. Typically, you can keep hold of all the assets when you file for a chapter 13 bankruptcy.
Whether you’re eligible to file for chapter 13 or chapter 7 bankruptcy depends on your means. Your bankruptcy attorney will conduct a means test to determine if your household income exceeds your geographic region’s median income. In that case, you’ll be required to file for chapter 13 bankruptcy.
Not all debts can be fully eliminated and there are some debts that can’t be discharged by filing for bankruptcy. These include spousal and child support, student loans, criminal restitution or debts that you could have removed in any previous bankruptcy. Others include luxury services or goods, cash advances, income tax debts, penalties and fines imposed for the violation of law.