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Piling up debt can cause immense problems. This can be due to job loss, medical emergency, death in the family, or a divorce. Bankruptcy can be one of the solutions to get rid of that massive debt. However, filing for bankruptcy does not mean you do not have to pay any of your obligations. Certain debts like student loans, child support, alimony, reaffirmed debts, government taxes, fines, etc., do not get discharged in bankruptcy. The debt you end up paying depends on the chapter of bankruptcy you are eligible for and file. However, a bankruptcy filing can affect your future considerably. Therefore, it is a decision that must be taken after much thought.
Different bankruptcy chapters
Six different bankruptcy chapters are meant to provide financial relief of varying degrees to different categories of people. Here is a brief look at them:
- Chapter 7: Liquidation bankruptcy
This is the most common type of bankruptcy filed by individuals. In this case, liquidation of non-exempt property takes place to pay the creditors the amount you owe. While your unsecured debts are discharged, the priority debts like student loans, taxes, etc., survive. If most of your debts are due to credit card bills, medical bills, personal loans, etc., and you have little non-exempt property, this is the best option. Usually, chapter 7 bankruptcy cases are no-asset cases where filers get rid of debt without paying anything. However, for filing under this chapter, you must pass the Means Test, which tests whether you have enough disposable income to pay creditors.
- Chapter 13: Repayment Plan
In this chapter, individuals reorganize their debts. They use their disposable income to pay off their secured and priority debts entirely, while a portion of their unsecured debts is paid in three to five years. The monthly payments depend on the number of debts and the filer’s disposable income. This bankruptcy chapter also allows you to keep the non-exempt property if you can pay its equivalent amount to your unsecured creditors. You can also catch up on past-due mortgage payments to prevent foreclosure. People with unsecured debt less than $419,275 and secured debt less than $1,257,850 can file for this bankruptcy chapter.
- Chapter 11: Large Reorganization
This bankruptcy chapter also involves reorganizing your debts. However, instead of individuals, it is for businesses and corporations who wish to remain operational despite bankruptcy proceedings. Individuals whose debts exceed the limits of chapter 13 bankruptcy and possess high-value assets can also choose to file under this chapter.
- Chapter 12: Family Farmers
This bankruptcy offers family farmers and fishermen a repayment plan to clear their debts. Filers of this bankruptcy chapter can prevent foreclosure and liquidation of property. Compared to chapter 13, this bankruptcy chapter is more flexible and offers higher debt limits.
- Chapter 15: Used in Foreign Cases
This bankruptcy chapter deals with international bankruptcy cases, allowing foreign debtors access to the U.S. bankruptcy courts.
- Chapter 9: Municipalities
This bankruptcy chapter offers repayment plans to cities, towns, school districts, etc., to repay their debts through reorganization.
Can bankruptcy be avoided?
While bankruptcy can help you find a way to get rid of your debts and rebuild your credit score, there are other less damaging ways available to tackle the debt issues. These include:
- Spending as per a fixed budget which includes catering to necessities (food, shelter, utilities, transportation, etc.) only.
- Looking for ways to increase your income, like a second job.
- Generating money by selling off luxury items you own.
However, if you still feel bankruptcy filing is the way out, call 888-297-6203 or visit https://www.recoverylawgroup.com/bankruptcy/ to discuss your options with experienced bankruptcy lawyers in Dallas.