When consumers like you are first searching for options with how to best manage their debt load, they may want to know what is bankruptcy and how it can help them. The U.S. Bankruptcy code was created to help good people get a fresh start in times of need and unforeseen circumstances. The truth is anyone can find themselves in a dire financial situation. All it takes is an unforeseen illness, a layoff from work, or any kind of circumstance in which a person does not foresee themselves ever being able to pay back a debt.
Bankruptcy comes in several different varieties known as chapters and what type may be best for you will depend on your situation. Most consumers typically are looking at either chapter 7 bankruptcy or chapter 13 bankruptcy while business owners looking to continue to run their business or high net worth or those over the chapter 13 debt limit may be looking towards chapter 11 bankruptcy.
What is Chapter 7 Bankruptcy?
Chapter 7 of the United States Bankruptcy code is known as the “fresh start” bankruptcy which allows debtors to discharge most if not all of their unsecured debt, including credit cards, medical bills, repossessions and payday loans. In essence, it allows you to get a fresh start and begin rebuilding credit immediately. For some clients their credit actually improves due to filing bankruptcy now that they are able to make payments on their remaining debts and all of their unsecured debt is eliminated. Additionally, in most cases you may keep your vehicle and home if there is not excess equity above state or federal exemption laws.
What is Chapter 13 Bankruptcy?
Chapter 13 of the United States Bankruptcy code operates much differently than chapter 7. In a chapter 13 bankruptcy, debtors enter into a 3 to 5 year repayment plan of their debts. The monthly repayment amount is based on household disposable income, family size, mortgage arrears, secured debts and priority debts among other things. Debtors are required to make monthly installment payments to the Western (or Eastern) District of Washington Chapter 13 trustee. After the debtor has paid on their debts for the 3 to 5 year repayment period, all unsecured non priority debts that have not been paid off will be discharged. The amount you have to pay unsecured creditors will be based on your available disposable income as determined by the means test or your current income and expenses if applicable. If any payments are missed, your case may be dismissed and you will not receive a discharge of your debt. A chapter 13 bankruptcy is intended for debtors who are not good candidates for a chapter 7 bankruptcy due to various reasons such as a debtor’s income being too high, a second mortgage being eligible to be stripped and discharged, arrearages on a home mortgage needing to be made up to stop a foreclosure, or if the debtors have filed a chapter 7 bankruptcy in the last 8 years.
What is Chapter 11 Bankruptcy?
Chapter 11 Bankruptcy is typically for businesses that wish to continue to run their business or individuals over the debt limitations or who have assets they may lose if they were to file for chapter 7 bankruptcy. If you are looking to close your business it may be advisable to simply close down your business, rather than have it go through a bankruptcy as a business cannot receive a discharge of it’s debt in chapter 7 bankruptcy and a chapter 11 can be very complex and expensive as a debtor in chapter 11 may be liable for opposing counsels legal fees as well as trustee fees, not to mention there are more requirements in chapter 11 than any of the other chapters of bankruptcy.
If you have additional questions about bankruptcy and your options please contact Symmes Law Group at 206-682-7975