The Administrative Office of the U.S. Courts recorded 544,463 bankruptcy filings in 2020. Non-businesses declaring bankruptcy represent 96% of filings for the year. Filing for bankruptcy isn’t an easy decision to make but oftentimes it’s the only option.
If you’re ever suffering financial hardship contact a bankruptcy lawyer. They help you understand the different types of bankruptcy options available to you. Here we cover the most common kinds of bankruptcies individuals face.
What Is Bankruptcy?
Bankruptcy is a means of finding debt relief when you can’t pay your bills. Different types of bankruptcy apply to personal and business finances. To file for bankruptcy you must appear before a judge to plead your case for insolvency.
There are two types of debts considered in bankruptcy: secured and unsecured debt. Secured debt includes collateral, like a car loan or mortgage. Unsecured debt includes things such as credit cards and medical bills.
Different Types of Bankruptcy
Each type of bankruptcy represents a chapter of the U.S. Bankruptcy Code. The Bankruptcy Code details actions a judge may take in a bankruptcy case. They could either forgive all debt or arrange a plan for you to repay the debt.
It’s always best you speak with a bankruptcy attorney before declaring bankruptcy.
Chapter 7 Bankruptcy
This is the most common form of bankruptcy for individuals with bills they can’t pay. The effect of Chapter 7 is liquidation, which could take up to six months. Liquidation requires selling all your assets to pay creditors what’s owed them.
With Chapter 7 the court examines your income to decide on the feasibility of you repaying your debt. Your income level must sit below your state’s average. The review process also involves creditors interviewing you about finances and outstanding debt.
With a Chapter 7 bankruptcy, unsecured debt exceeding asset liquidation gets forgiven. But the declaration of a Chapter 7 bankruptcy stays on your credit report for 10 years. And you can’t file another Chapter 7 within the eight years thereafter.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a different process than Chapter 7. When you file for Chapter 13 you aren’t awarded debt forgiveness. The court sets a budget plan for you to pay all secured and unsecured debt in 3-5 years.
There’s a limit to the amount of debt someone can claim for bankruptcy. Neither bankruptcy option forgives student loans, taxes, or mortgages. But Chapter 13 can stop a foreclosure and allow you time to bring your account up to date.
A Chapter 13 bankruptcy remains on your credit report for 7 years. And you can’t file another Chapter 13 within the two years thereafter.
Chapter 11 Bankruptcy
If you’ve heard of Chapter 11 you may know it’s primarily for businesses. Otherwise, only individuals whose debt exceeds the limit for Chapter 13 can qualify.
Chapter 11 gives business owners an opportunity to reorganize. During that time they need to devise a plan for paying creditors. A judge and the business’s creditors must approve the plan.
What Type of Bankruptcy Is Right for You?
If you’re struggling to pay bills and looking for a way out, contact a bankruptcy attorney. It’s difficult to know which type of bankruptcy is the best solution for your situation. Leave that to the professionals.
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