Bankruptcy filing allows consumers a fresh start when they have no other way to remove debt. However, it isn’t as simple as going to court and filing papers because there are many types of bankruptcy. The two main types of bankruptcy are Chapter 7 and Chapter 13, but they have different requirements. Learn what these are and which bankruptcy filing you need.
Chapters 7 Bankruptcy
Chapter 7 bankruptcy is commonly referred to as “liquidation bankruptcy” because it involves selling some assets to clear you of debts. Consumers commonly choose this type because it is easy so it makes up over 60% of cases, but it requires a means test to determine who qualifies to prevent abuse of the system. After filing a petition with the court, it assigns you a trustee to handle the selling of qualified assets, such as valuable artwork or second homes, to pay creditors.
A benefit of filing Chapter 7 is it applies an “automatic stay” so creditors cannot pursue further collection action. After the debts are settled, you receive a discharge from the court. It benefits people who have a good deal of debt and few assets as well as filers whose discharged debt exceed their property value. It doesn’t set a debt limit to file, but it can only discharge certain unsecured debts, such as credit card or medical debts. You will be required to take a debt management course and meet with creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often called “reorganization” or “wage earner’s plan”. It sets up a payment system through the court to lower debt so you can keep your assets as long as you pa on time. This type of bankruptcy filing is for debtors who have a regular source of income and make over the limit to file for Chapter 7 and would like to pay debts or catch up on mortgage payments. It also benefits filers who have debts that cannot be discharged, such as alimony or child support payments.
Unlike Chapter 7, Chapter 13 sets a debt limit to file which has recently changed. The new laws set the maximum secured debt at $1,257,850 and unsecured debts at $419,275. In some cases you may be able to still qualify by reducing total debt through lien stripping, a process to make certain debts unsecured such as a second mortgage. You still have to pay some of your unsecured debts under this type of bankruptcy.
Hiring a Bankruptcy Attorney
If you think bankruptcy is for you, it helps to have a bankruptcy attorney because bankruptcy laws can be complex. Contact Fair Free Legal Services to schedule a free consultation.
Fair Fee Legal Services
8665 South Eastern Avenue, Suite 101
Las Vegas, Nevada 89123