If you are struggling under the weight of your unmanageable debts, you have likely thought about filing for protection under the bankruptcy code. Because many people have a stigma associated with declaring bankruptcy, they often wait beyond the time when their financial situation could first benefit from it, waiting instead to feel as if they are ready emotionally to do so.
Bankruptcy is simply an available legal option that can help you to have a fresh financial start. Corporations have long relied on bankruptcy as a tool to be used in conducting business. There is no reason why you shouldn’t view it in the same manner if your financial circumstances demand it.
Types of consumer bankruptcy for individuals
The primary types of bankruptcy that are available to individual consumers are Chapter 7 and Chapter 13 bankruptcies. Chapter 7 is also called a liquidation while Chapter 13 is called a reorganization. Chapter 11 provides another avenue of reorganization, but it only applies in rare situations.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is the most common type of consumer bankruptcy for individuals. With this type of bankruptcy, the debtor files a petition for relief with the bankruptcy court. Upon filing, the court issues an automatic stay, which is an injunction ordering the debtor’s creditors to halt all actions to collect on the owed debts.
People file for protection under this chapter in order to discharge their debts. If you do so and a discharge of your unsecured debts is granted, you will not be required to repay them, and your creditors can make no further attempts to collect them from you. There are a number of different types of debts that are not able to be discharged. These include child support, alimony, recent tax debts, personal injury awards because of accidents involving drinking and driving or criminal restitution resulting from the debtor’s illegal and malicious acts.
Chapter 13 bankruptcy
Individuals may also choose to file for reorganization under Chapter 13 of the bankruptcy code. In order to be eligible for reorganization, the debtor is required to meet certain criteria. These include having a regular income and the ability to make the payments that are required under a repayment plan lasting between 3 and 5 years. Chapter 13 also has a ceiling on the amount of debt a person can have in order to file under it.
When you file a Chapter 13 bankruptcy petition, an automatic stay is issued, immediately halting all collection efforts. You will propose a repayment plan through which you will repay at least a portion of your debts. The plan is presented to the creditors, and they are able to object to it and suggest changes. Once a plan is approved by the court, the creditors must accept it. If you successfully complete your repayment plan, the remaining debts that are left over will be discharged.
One great benefit of Chapter 13 is something that is called lien stripping. Lien stripping refers to a process through which second mortgages or home equity lines of credit may be stripped away from the home in certain situations. This is not always possible, but it is available if you owe more on your first mortgage than your home is worth. At the end of your repayment plan, the second mortgage or home equity line of credit would be discharged along with your other remaining unsecured debt balances, meaning you would never have to repay it.
Contact Our Attorneys
The bankruptcy code is in place in order to protect debtors and creditors alike. If you file under the correct chapter and do everything properly, bankruptcy can provide you with immediate relief while also being cost effective. It is a good idea to get help from our experienced bankruptcy attorneys in order to make sure that everything is filed in the required manner. Call Georgette Miller and Margolis Edelstein today to schedule your consultation.