Under Federal Bankruptcy Law, you have the ability to relieve all or part of your debts when you can no longer meet your obligations to creditors and lenders. Two major types of personal bankruptcy apply to consumers. Chapter 7 bankruptcy allows debtors to discharge all or part of their debt. In Chapter 13 bankruptcy, debtors repay all or part of their debt based on a payment plan.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, you can have all or part of your debts discharged and retain all exempt assets.
What are exempt assets?
Federal Bankruptcy provides, any other exemptions. Including $22,000 in real estate exemptions; $3,300 in auto exemptions and up to $10,000 in personal property exemptions.
How do I qualify?
To qualify for Chapter 7, you must pass a means test proving that your income is less than the median income for your family size in your state. If you fail the means test, you will not be allowed to file Chapter 7. Instead, you may file Chapter 13.
Chapter 13 Bankruptcy
Under Chapter 13, you repay all or part of your debt through a three- to five-year repayment plan. When you make the personal bankruptcy filing, you will also submit a repayment plan to the court. After submitting the plan, you should begin making payments to a trustee (who then pays your creditors).
After filing, there will be a hearing to approve your payment plan. While creditors can object to the payment amounts, the judge has the final say. After your plan has been approved, you’ll continue making payments to the trustee. Once you’ve completed your Chapter 13 payment plan, any remaining debt is discharged. You are no longer liable for discharged debts.
Why would I file Chapter 13?
You might choose to file Chapter 13 instead of Chapter 7 if you have secured debt, like a car loan, that you want to continue paying. Since Chapter 7 bankruptcy may require you to give up certain assets, Chapter 13 might be a better option if you want to keep these assets. Furthermore, if your income above the median for your family size in your state, you will not be able to file Chapter 7 bankruptcy.
According to the U.S. Bankruptcy Code, to file Chapter 13, you cannot have more than $922,975 in secured debt and $307,675 in unsecured debt.
Like Chapter 7, you must receive credit counseling from an approved credit counseling agency.
Filing Personal Bankruptcy
Since personal bankruptcy laws are complex, it is a good idea to seek advice from an attorney before filing for bankruptcy. This is the best way to ensure your paperwork is filed completely and accurately.
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