Filing bankruptcy is a legal proceeding that enables persons or companies to be released from the debts they owed. At the same time, it provides the creditor with an incentive for recovery. The federal bankruptcy court outlines relevant bankruptcy law under the United States bankruptcy code. There are several bankruptcy forms, usually classified by the specific chapter of the bankruptcy filed.
A bankruptcy filing is an opportunity for debtors to have a fresh start. Filing for bankruptcy may be done by an individual. Married couples, on the other hand, may opt to jointly file a bankruptcy petition. There are various bankruptcy options that you may choose from. A bankruptcy filing is often under either Chapter 7 or Chapter 13. The two differ in specifications, requirements, and benefits.
Before you file for bankruptcy, make sure that you understand the bankruptcy process of dealing with debt. Knowing how to file a bankruptcy petition correctly is necessary, regardless if you are filing Chapter 7 or 13. Consult with your bankruptcy attorney early on. This will help you avoid any bankruptcy procedural mistakes.
Bankruptcy Process for Chapter 7
Not a lot of people are familiar with the role of a trustee in bankruptcy cases. When a debtor opts to file for bankruptcy Chapter 7, the assigned bankruptcy trustee will handle the liquidation of his non-exempt properties and the distribution of funds to his creditors. Essentially, in a Chapter 7 bankruptcy proceeding, your trustee will liquidate your assets and use the funds to pay all your debts. The key advantage of filing a bankruptcy Chapter 7 is that unsecured debts, such as credit card bills, loan debt, or medical debt, may be eliminated.
Bankruptcy filings under this chapter follow relatively stricter bankruptcy rules. An individual with an income higher than the state median income (for an average size of a family) will not be qualified to file a Chapter 7 petition in bankruptcy court. If you filed for bankruptcy but your disposable income (after necessary expenditures) is enough to repay your unsecured debt in five years, your Chapter 7 filing will likely be dismissed. In general, those with a higher monthly income will not be eligible to file for bankruptcy Chapter 7.
Bankruptcy Procedure for Chapter 13
A bankruptcy Chapter 13 is referred to as reorganization. Here, debtors reorganize or restructure their debts and propose and negotiate for a debt repayment plan. The payment plan is usually for three to five years. In this type of bankruptcy, you generally get to secure most of your personal property. If you can give your monthly payments on time, some of your unsecured debts may eventually be discharged.
If you meet the qualifying criteria under both types of bankruptcy, choosing the best option may require particular considerations. These include:
Foreclosure or confiscation of properties
Debtors may be able to secure their assets or properties under Chapter 13. This is primarily because they pay their debts by actually making payments every month (or depending on the repayment plan). In a Chapter 7 case, the properties of the debtor will be liquidated to pay off their debts.
Under state law, certain forms of properties are tagged as exempted. If the equity reaches the exemption sum, you can lose your property (your house, for example).
Types of debts and loans
Once you have filed bankruptcy under Chapter 7, most of your unsecured debts will be eliminated. Certain types of debt, however, such as tax debts, fines, or child and spousal support debt, will not be wiped-out. On the other hand, if you file for a Chapter 13 bankruptcy, you can remove your tax debt. This is because you may be able to catch up with missed payments over time. For secured debt, meanwhile, the loan balance must first be decreased before the total amount to be repaid could be reduced.
You must weigh-in your properties, debt, income, and financial objectives when you decide on the type of bankruptcy filing that works for you. You may also want to consider the duration of each. Usually, Chapter 7 would only take months to be complete. Chapter 13, however, would take years.
Bankruptcy attorneys handle countless of bankruptcy cases regularly. They can recommend the right choice for you. Legal help is necessary for you to understand the advantages and disadvantages of each type of bankruptcy. A trusted bankruptcy lawyer shall evaluate your circumstances and help you decide which chapter would be appropriate for your case. Call us at Phoenix Fresh Start Bankruptcy Attorneys for a free legal consultation.