How the Bankruptcy Process Works
The prospect of filing for bankruptcy can seem overwhelming. The reality is that bankruptcy filings are far more common than most people assume. In fact, from 2005 to 2017, nearly 13 million Americans filed consumer bankruptcy petitions in the federal courts.
Several types of bankruptcy exist to help debtors find relief. The various chapters in the Bankruptcy Code are tailored to fit the full range of situations that consumers and businesses encounter. A bankruptcy lawyer will help you sort out which kind of bankruptcy is right for you.
Most American consumers proceed in one of two ways when their debts are no longer manageable. The first route, Chapter 7 Bankruptcy, is what most people imagine when they think about bankruptcy. The second, Chapter 13 Bankruptcy, is an alternative that Congress encouraged more people to pursue when it passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005.
Route 1: Chapter 7 Bankruptcy
Your bankruptcy lawyer may inform you that your circumstances merit a Chapter 7 Bankruptcy filing. In short, this form of bankruptcy instantly settles your debts and provides something akin to a “fresh start.” How does this work?
To settle your debts, all of your non-exempt assets are liquidated – a technical term meaning changed into money – and then distributed to your creditors. With a few exceptions, this process puts an end to the collection calls and fees and you can start over debt-free.
Federal and state laws regulate the process of exempting (protecting) your property during a Chapter 7 filing. These exemptions are there to help you keep the vital property, such as your car. To ensure that you make proper use of the specific exemptions in your state, consult a quality bankruptcy lawyer.
In some cases, a Chapter 7 filing will not be possible. If your income surpasses a certain threshold, your circumstances may merit a second type of bankruptcy.
Route 2: Chapter 13 Bankruptcy
At first glance, Chapter 13 Bankruptcy may sound less appealing. A Chapter 13 filing, unlike Chapter 7, does not eliminate your debts instantly. It will not have the feel of a full “fresh start.”
On closer examination, however, Chapter 13 Bankruptcy has several advantages when compared with Chapter 7. In brief, Chapter 13 filings are available to debtors who have a consistent source of income that will allow them to establish a repayment plan. These plans require you to repay your debts, usually over a 3 or 5-year period.
Why would you want to file for a form of bankruptcy that requires you to make payments for years? In many cases, the decisive factor will be the desire to keep your home. A Chapter 13 Bankruptcy filing can stop foreclosure proceedings and enable you to establish a plan to stay in your home as you complete your repayment plan.
The bankruptcy process can be daunting. Still, with the help of an experienced bankruptcy attorney, you can find your path towards the fresh start you deserve.