What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is often called “liquidation” bankruptcy. People usually choose this chapter when they do not have enough income to repay their debts. Most debts in Chapter 7 are eliminated and completely discharged. However, you may have to sell some property in order to repay creditors. You must qualify for Chapter 7 via a Means Test that will determine if your income meets guidelines to file Chapter 7. A bankruptcy attorney can walk you through the Chapter 7 process and help you take the means test.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, often called “reorganization” bankruptcy, may be used to manage debt over a three to five year payment period. If you have enough income to repay most of your debts but need structure in which to do that, Chapter 13 may be an option for you. Your debts may not exceed certain limits; however, most people who do not qualify for Chapter 7 can utilize the Chapter 13 bankruptcy process.
The Bankruptcy Process
The process of filing bankruptcy can be complex. You must submit specific forms and provide a plethora of information to the bankruptcy court. There are court hearings and legal procedures that you must follow. A skilled bankruptcy attorney can guide you through the process and help you understand your legal options.
Steps in the bankruptcy process include the following:
Step 1: Complete a credit counseling course.
Within 180 days prior to filing for bankruptcy, you must complete a credit counseling course. The U.S. Trustee’s office must approve the course, and it can cost between $25 and $35 for the course. If you cannot afford a credit counseling course, you may qualify for discounts or a free course.
Step 2: File your bankruptcy petition with the federal court.
You must file a petition for bankruptcy along with a filing fee with the federal bankruptcy court in your jurisdiction. You must also submit information about your income, debts, and any assets you own. The bankruptcy court will quickly issue an automatic stay order, which will pause all creditor collection efforts. If you are dealing with a foreclosure or repossession, these will stop. Calls, emails, and other contacts from creditors will also be routed to your bankruptcy attorney. An automatic stay will not be put into place or will be limited if you have already filed for bankruptcy once or more within the last 12 months.
Step 3: Attend a 341 Meeting of Creditors.
Within 60 days of when you file your bankruptcy petition, you will attend a hearing called the “meeting of the creditors.” This hearing will not take place in a court, but will likely be in a meeting room. Your bankruptcy trustee, attorney, and creditors may appear at the hearing. However, it is rare for creditors to actually attend the meeting of the creditors. Typically, you answer questions from the trustee and review information that you submitted with your bankruptcy petition.
Step 4: Take a second debt counseling course.
After your meeting of the creditors, you will have to take a second debt counseling course. This will help you understand your current budget and how to manage your debts going forward.
Step 5: The court will confirm your eligibility to file bankruptcy.
The personal bankruptcy court will examine your details in addition to any type of obstacles provided at the conference of financial institutions. If you are submitting Chapter 7, the insolvency court will ensure you pass the Means Test. If you are filing Chapter 13, the insolvency court will assess the quantity of your safeguarded and also unsafe financial obligations and also establish if you qualify.
Step 6: The court will manage your debts.
If you are eligible for personal bankruptcy, the court will certainly handle your financial obligations according to the phase of bankruptcy that you are requesting. If you are filing Chapter 7, the court might need you to liquidate some of your property to pay your financial institutions.
What Types of Debt Can Be Discharged?
You can not discharge all debts via personal bankruptcy. There are certain kinds of financial obligation that are “dischargeable” and also others that are “nondischargeable.” An experienced insolvency attorney can examine your debt and help you comprehend which kinds of debt you are dealing with.
You can entirely erase debts that are dischargeable through bankruptcy. You do not need to settle them in any way; additionally, the financial institutions can not pester you to gather them. Dischargeable financial debts consist of medical costs, charge card debt, personal loans, as well as utility expenses.
Nondischargeable financial debt can not be eliminated via bankruptcy; however, you might have the ability to handle these financial debts via your Chapter 13 repayment plan. Instances of nondischargeable debt consist of some tax financial debt, alimony, youngster assistance, and also pupil financings.
Alternatives to Bankruptcy
If you are not sure of what to do regarding your financial debt, a bankruptcy attorney can inform you of your alternatives. While insolvency may not be the best option for you, a legal representative can lead you through your options, which may consist of financial obligation consolidation, negotiation to decrease financial obligation amounts, restructuring of lendings, and also much more.
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