This bankruptcy procedure is utilized the most often as it is enables debtors to eliminate their unsecured debts (medical bills, student loans, credit cards) quickly. You must pass a means test to qualify for Chapter 7 bankruptcy; should your income be too high, you will be ineligible to file for Chapter 7. A trustee will sell off your nonexempt property and the proceeds of such sale will go to your creditors. If you are behind in auto loan payments, your vehicle may be possessed.
This type of bankruptcy is most often used by businesses, but can be used by individuals. It allows a business or consumer to restructure their debt payments and create a repayment plan that allows them to pay back debts owed over time. Should you file Chapter 11, none of your assets will be sold to pay creditors.
Chapter 13 also creates a repayment plan; debt will be repaid within 5 years. The debt limits of Chapter 13 are $383,175 for unsecured debt (credit cards, utility bills, medical bills) and $1,149,525 for secured debt (mortgages and vehicle loans). Chapter 13 enables debtors to keep their property while catching up on missed mortgage payments or late car payments.
An individual or a business who can no longer pay their expenses or their debts, or their expenses and debts are higher than their income, can file for Bankruptcy.
A Bankruptcy can give you a “fresh start”. This is done through the discharging of certain debts that you owe and in some cases setting up a payment plan for those debts that cannot be discharged. Also, bankruptcy creates what is called an automatic stay, which gives you a period of time during which creditors cannot collect on debts owed. However, there are ways for some creditors to get around the automatic stay, so it’s important to know how and when the automatic stay is effective, and what risks are involved.
There are several types of debt you or your business can accrue, not all of which are dischargeable through bankruptcy. Those generally not dischargeable are government tax claims, spousal and child support, customs fees, fines owed for convicted crimes, student loans, and secured debt. Although there are exceptions in most of these nondischargeable debts, this is a complicated area. A secured debt is a debt that has a lien attached to it or is secured by the collateral promised against the debt, such as a house, or a car. Debts that are dischargeable through bankruptcy are credit card payments, medical bills, legal and accounting bills, personal loans, and other unsecured debt. Unsecured debt is a payment owed that is not “secured” by a collateral item.
It is always better to file a bankruptcy with the assistance of an attorney who has the experience and knowledge to lead you through the entire process. Most bankruptcy attorneys will provide you with a free consultation where they will evaluate your situation and advise you as to your next step. Sometimes, an individual is not a good candidate for a bankruptcy for a number of reasons. Possibly their debts can be handled in another way that is not as drastic as filing a bankruptcy. Or, an individual might be judgement-proof and there is no reason to file bankruptcy. Or, a bankruptcy will not accomplish the desired outcome. These are just some of the reasons an attorney might advise someone not to file.
Experience is the key here. If your attorney is new to the practice, they might not understand the bankruptcy laws and rules themselves and you could end up in a worse situation than before your filing. Two things you need to know: How long has the attorney been filing bankruptcies? How many bankruptcies prior to yours, have they filed? Don’t be afraid to ask, remember, the attorney will be working for you. You will be paying them for their experience and legal analysis. There are many attorneys out there who have decided because of the economy that they will become a “bankruptcy attorney”, but they lack the experience or knowledge to protect you. Don’t fall prey to an attorney who is going to “learn the practice” at your expense.