Maybe you are looking for general information, or you have realized you need to file soon and are looking for how to go about it – either way you will be glad later that you started thinking about taking concrete steps. Filing bankruptcy is a decision that thousands of Americans make each day in order to become debt free. While daunting it can be liberating.
Bankruptcy is a legal process governed by the federal courts that allows individuals and married couples to eliminate certain types of debt. The two major categories of bankruptcy are personal and business. Within each category there are specific legal chapters that are designed for people with certain types of debt and certain levels of income. These chapters are there for your protection.
The most common type of personal bankruptcy filed in America today is Chapter 7 bankruptcy. It is mainly helpful for individuals or married couples who have large amounts of unsecured debt and low amounts of assets. Unsecured debt involves things like credit card debt, medical bills, personal loans, and payday loans. Assets are items like homes or vehicles. In a simple Chapter 7 bankruptcy the debtor can fully eliminate unsecured debts like the ones listed above and achieve a fresh start. In order to qualify for a Chapter 7 bankruptcy the income of the individual debtor typically needs to be below the state median income for their household size. If the income is more than the state median then the court may suggest filing the other type of personal bankruptcy.
Chapter 13 bankruptcy involves a 3-5 year payment plan in which the debtor is given the option to pay back a percentage of their overall unsecured debt by making monthly payments to a bankruptcy trustee. The percentage of unsecured debt that the debtor must pay back can range from 10-100% depending on the amount of debt and the income of the debtor. At the end of the 3-5 year payment plan the debtor will not only be debt free, but also be caught up on all other secured payments such as their mortgage. Filing it can also be used to prevent the foreclosure of a home or the repossession of a vehicle.
The process of filing bankruptcy will be different for each person who files depending on the mix of debt. Filing bankruptcy typically involves some sort of fee whether it is payment to the attorney or just a filing fee to the court. Deciding whether or not to hire a bankruptcy attorney is completely your decision, and for a Chapter 7 bankruptcy you can file “pro se” meaning on your own. However, if you intend to file a Chapter 13 bankruptcy it is in your best interest to hire an attorney since the process is much more complicated than that of a Chapter 7 bankruptcy.
You should also know that there are certain debts that filing bankruptcy cannot reduce or eliminate. These debts are items such as student loans, va loan, child support, alimony, or anything owed to the government like back taxes, parking tickets or even library fines.
Like we’ve mentioned before, the decision to file bankruptcy is yours and yours alone, but there are some things you can look for to help with your decision to file or not to file.