What Is Bankruptcy?
Bankruptcy is a legal process to get debt relief from creditors. Bankruptcy can be helpful if you are too far in debt to be able to get out from under it. However, bankruptcy filing options for individuals are limited, and the bankruptcy process will not forgive all of your debt.
Bankruptcy filings are mostly regulated by federal law but bankruptcy exceptions vary by state. If you want to know more about whether bankruptcy might be the best option for your financial situation, contact a bankruptcy lawyer in your state for advice.
There are six different kinds of bankruptcy, from Chapter 7 to Chapter 15. The most common types of bankruptcy for individuals are Chapter 7 and Chapter 13 bankruptcy. Different types of bankruptcy include those for corporations, family farmers, and municipalities.
Chapter 7 bankruptcy is the most common type of individual bankruptcy. In a Chapter 7 filing, the bankruptcy trustee takes over your property and assets and sells off the property, giving the money to creditors. Chapter 7 bankruptcy proceedings generally take up to six months, and at the end, you are cleared of your qualifying debts. There are some types of assets that may be exempted from liquidation that you can keep, like your home. There are also types of debt that you cannot discharge under Chapter 7.
Chapter 13 bankruptcy is known as a wage earner’s plan. This type of bankruptcy may be best if you are earning a regular income. Under this monthly payment plan, you make a debt repayment plan over a period of time, from three to five years. During the repayment period, creditors can’t try to collect on your debts. With a Chapter 13 bankruptcy, you may be able to stop a foreclosure and keep your home.
Filing bankruptcy will generally hurt your credit score, and it can be hard to get a credit card or take out a personal loan for a period of time. In general, a Chapter 7 bankruptcy will stay on your credit report for 10 years. A Chapter 13 bankruptcy will be on your credit report for seven years after the filing date.
You have to be eligible to file for bankruptcy. Depending on the type of bankruptcy, there are different eligibility requirements set by federal law. For example, there are household income eligibility requirements for people who want to file Chapter 7 bankruptcy. There are also income requirements for people looking to file for Chapter 13 bankruptcy reorganization proceedings.
Some property is exempt from bankruptcy. Under federal bankruptcy homestead protections, a limited amount of equity in your home is safe from creditors. However, some states have homestead exemptions that protect 100% of home equity in a bankruptcy. Other states don’t have any homestead protections. Other property allowances may include motor vehicles, jewelry, firearms, and household goods.
If you already filed for bankruptcy, you may not be eligible to file again until enough time passes. If you are filing Chapter 7 bankruptcy, you have to wait eight years from your last Chapter 7 filing or six years from a previous Chapter 13 filing. If you are filing for Chapter 13 bankruptcy, you have to wait at least four years from the last Chapter 7 filing or two years after the previous Chapter 13 filing.
A Chapter 7 will typically discharge your Unsecured debts, but not all your debts are forgivable. Debts not subject to bankruptcy discharge may include:
- Child support
- Spousal support or alimony
- Certain tax debts
- Student loans (in most bankruptcies)
Federal law does not require you to have a bankruptcy law attorney to file. You are legally able to file in bankruptcy court on your own. However, the U.S. Bankruptcy Code is complicated, and without professional help, it is easy to make a mistake. Problems with your bankruptcy filing can delay protection from lenders or fail to cover all your creditors.
An experienced bankruptcy attorney can help you through the process, protect your most important assets, and clear all dischargeable debt by the end of the bankruptcy process. Talk to a bankruptcy lawyer for legal advice about your case and how quickly you can clear your credit card debt and medical bills and get a fresh start.
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