What Is Bankruptcy?
Bankruptcy can be a daunting concept, often surrounded by stigma, misconception, and confusion. Looking into it can be stressful, but it’s important to remember that bankruptcy is a tool meant to be used when necessary.
Bankruptcy is a legal process designed to help individuals or businesses who have a large amount of debt. Understanding the different types of bankruptcy and how the processes work can help to ensure you make the correct, informed decision about your finances and future. WHG can explain your options in a free consultation. Call us at (800) 320-HELP or contact us online.
Types of Bankruptcy Filings
Bankruptcy filings in the United States are categorized under different chapters. The following chapters are available for individuals. There are other bankruptcy options available specifically for businesses, as well.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy (or “liquidation bankruptcy”) is the most common amongst those with minimal assets, and it allows you to liquidate your nonexempt assets in order to repay creditors. After your assets are liquidated, the remaining debts are typically discharged.
Unsecured debts, like credit cards and personal loans, can be discharged when filing for Chapter 7 bankruptcy. However, to be eligible for Chapter 7 bankruptcy, you must:
- Make less than the average same-size household in your state (over the last six months)
- Complete an individual or group credit counseling course 180 days before filing
- Not have a Chapter 7 bankruptcy in the past eight years or a Chapter 13 bankruptcy in the last six years
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as a “wage earner’s plan,” is for individuals who don’t qualify for Chapter 7 bankruptcy because of the income requirements. If you make more than the average same-size household in your state, Chapter 13 bankruptcy might be the option for you.
This type of bankruptcy allows you to create a repayment plan. These repayment plans typically span three to five years, and you’ll be able to retain your assets along the way. Instead of drowning in debt, you’ll be able to repay the money you owe in manageable installments.
In order to be eligible for Chapter 13 bankruptcy, you must:
- Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as their unsecured debts are less than 2,750,000 as of the date of filing, according to the United States code.
Other Bankruptcy Filings
While Chapter 7 and Chapter 13 are the most common types of bankruptcy for individuals, other options are available for both individuals and businesses, including the following.
- Chapter 11 bankruptcy, while primarily used by businesses, can be used by individuals who don’t qualify for Chapter 13. Chapter 11 bankruptcy allows for the restructuring and reorganization of debts while still allowing businesses to remain in operation.
- Chapter 12 bankruptcy is designed specifically for family farmers and fishermen and provides a payment plan that addresses the unique challenges faced by those in these professions.
- Chapter 15 bankruptcy addresses international bankruptcy issues, helping to resolve cross-border obligations.
The Bankruptcy Court and Process
This legal process starts by filing a petition in bankruptcy court. This court handles all bankruptcy cases and is governed by federal law. Bankruptcy law and proceedings can be complex, but understanding the process is crucial for a successful filing. Here’s what you need to know.
Filing a Bankruptcy Petition
To start the process of filing for bankruptcy, you’ll have to submit a petition to the bankruptcy court. This petition will include information about your income, expenses, assets, and debts. You’ll also have to pay a filing fee, which varies based on the type of bankruptcy you’re filing for. By working with a bankruptcy attorney, you can ensure that your initial petition is filed correctly, preventing any delays.
Understanding the Bankruptcy Code
The bankruptcy code is a set of federal laws that outlines the different chapters of bankruptcy available, eligibility criteria, and processes for filing. Familiarity with this code is essential for a successful case. Our bankruptcy attorneys know the bankruptcy code frontward and backward and can ensure that there are no mistakes in the process of filing your case.
Bankruptcy and Debt
Bankruptcy was created in order to deal with debt. Debt can often feel like an anchor weighing you down, making it impossible to move forward in a positive direction. Thankfully, by filing for bankruptcy, you can take some of that weight off your shoulders.
Unsecured debts, such as credit card balances and medical bills, can be discharged in a Chapter 7 bankruptcy, while secured debt, like mortgages and car loans, can be reorganized under Chapter 13 bankruptcy.
Dischargeable and Non-Dischargeable Debts
Unfortunately, not all debts can be discharged when filing for bankruptcy. Chapter 7 only allows for the discharging of unsecured debt, meaning credit cards and medical bills. In other cases, such as Chapter 13, you can restructure your unsecured debt, making it easier to pay off.
But other types of debt, like student loans, alimony, child support, and taxes, cannot be discharged. There are some circumstances in which income tax debt obligations can be discharged. However, fraud penalties or payroll taxes cannot be eliminated in any circumstances.
Bankruptcy and Assets
When filing for bankruptcy, you may be required to liquidate your assets. This depends on the type of bankruptcy you file for, as well as the state you reside in. Different states have different laws regarding asset protection and exemptions.
Exemptions and Asset Protection
Exemptions allow you to keep certain assets. This normally includes your primary residence and the vehicle you use to get to work and back. Some states also allow you to keep your personal property. A bankruptcy lawyer will help you to best understand which assets you’ll get to keep and which will need to be liquidated as a part of your plan.
Bankruptcy and Credit
When deciding whether or not bankruptcy is right for you, it’s important to think about both the pros and the cons. There are quite a few pros, such as a fresh financial start, but the cons shouldn’t be ignored. For example, it can take quite some time to rebuild your credit score and report after filing for bankruptcy.
Bankruptcy can remain on your credit report for up to 10 years after filing and can affect things like securing new debt and renting. However, many people have success rebuilding their credit after bankruptcy, so it is very possible to do so, it just takes hard work and dedication.
Credit Damage and Rebuilding
Bankruptcy can and will do significant damage to your credit. However, as time passes, you can rebuild your credit by making on-time payments, keeping credit utilization low, and monitoring your credit report. Your bankruptcy attorney will also be able to offer guidance on how to rebuild your credit after you file.
Working with a Bankruptcy Lawyer
Navigating the process of filing for bankruptcy can be complex and oftentimes confusing. Discerning the different chapters and deciding which is right for you will be much easier with the help of an experienced attorney. Bankruptcy attorneys know the federal bankruptcy laws like the back of their hand and can help ensure your petition is filed correctly the first time around.
They can also help you figure out which chapter is right for you, which assets you’ll need to liquidate, and which you’ll keep, and they’ll make sure everything happens in a timely manner. You won’t have to deal with any delays from issues or errors because there will be an experienced attorney double-checking everything first!
Do I Need a Bankruptcy Attorney?
It’s possible to file for bankruptcy without the help of a bankruptcy lawyer. However, because the process can be time-consuming and confusing, we don’t recommend it. It’s incredibly easy to make mistakes when filling out forms, and the internet can give you the run-around when you’re looking for answers.
And, of course, without an attorney, you may not get the best repayment plan available to you or the most debt discharged. Our bankruptcy lawyers are here for you throughout the bankruptcy process and can answer any questions you may have along the way.
What to Expect from a Bankruptcy Lawyer
When you start working with a bankruptcy lawyer, they’ll walk you through the different options available to you and determine which chapter you’re eligible for. Then, they’ll help you prepare your petition and represent you in court during bankruptcy proceedings if necessary.
Overall, they’ll provide you with guidance on the bankruptcy process and help you to get the best repayment plan available or secure the most debt relief possible. After you file for bankruptcy, they’ll also discuss the impact on your credit report and score. They’ll help you determine the best plan of action for rebuilding your credit and give you guidance throughout the process.
Contact Werner, Hoffman, Greig & Garcia to Speak with an Experienced Bankruptcy Lawyer
If you’re ready to file for bankruptcy, contact our experienced bankruptcy lawyers as soon as possible to schedule a free evaluation of your file. We’ll help walk you through the bankruptcy process and provide alternatives when possible.
Additionally, we’ll help you craft a plan of action for rebuilding your credit after your bankruptcy filing. Contact us online or at (800) 320-HELP to speak with an experienced attorney ASAP about your options for the different types of bankruptcy filings.
Frequently Asked Questions About Bankruptcy
What assets do you lose in Chapter 7?
Each state has a list of specific non-exempt assets. In many cases, this includes your primary residence and your personal vehicle. However, it’s important to look into your state’s specific laws regarding assets you’ll lose when you declare bankruptcy. For the most part, this includes secondary residences, personal assets over $1,000, investments, and savings accounts.
Is it better to file a Chapter 7 or 13?
Choosing between Chapter 7 or Chapter 13 bankruptcy is very personal. If you’re eligible for Chapter 7 bankruptcy, it’s often the better choice, as debt can be discharged completely. However, if you make more than the average salary for same-size households in your state, you’ll have to opt for Chapter 13 instead.
Do you still have to pay debts after bankruptcies?
This depends on the Chapter you file. For Chapter 7, most debts are often discharged by the bankruptcy judge and federal court. However, you will still owe money if you file a Chapter 13 bankruptcy because you’ll be restructuring your debt into one monthly payment.
What are the downsides of personal bankruptcies?
After the bankruptcy process begins, you’ll likely see damage to your credit score and report. This is very common after you file a bankruptcy case. It can take some time after filing to rebuild your credit. You may be ineligible for new loans, credit cards, or leases in the meantime.
