Bankruptcy and Its Different Types
Bankruptcy, as defined by Oxford Languages, is the state of being bankrupt or completely lacking in a particular quality or value; It is also defined as a legal process taken by either a business or individual to repay their pending debts when it becomes overwhelming or cumbersome.
Although this legal proceeding has rules outlined in the U.S. Bankruptcy Code and helps you out with your debts to avoid foreclosure, most people would only regard bankruptcy as their last resort. This is because bankruptcy can and will reflect on your credit report for several years and will significantly affect your credit standing, making it hard for you to get a mortgage or car loan or even secure a credit card.
Before filing for bankruptcy, you should always consider alternatives to settle your financial obligations and exhaust all resources, considering how much bankruptcy can affect your credit. However, if you think filing for bankruptcy is the best and only way to pay off your financial obligations, the first thing you need to do is consult a highly skilled bankruptcy attorney. A reliable Chicago bankruptcy attorney can help you get familiar with the bankruptcy law, process, terms and stop creditor harassment.
Here are the different types of bankruptcy that you can learn and get familiar with and consider when filing for a petition:
Among these types, the most commonly used by individual debtors are Chapter 7, or the liquidation of assets, and Chapter 13, which is a bankruptcy process for the reorganization of a debtor’s repayment with a lowered payment plan.
Chapter 7 vs. Chapter 13
Chapter 7 Bankruptcy is the liquidation of your assets. It’s when a bankruptcy trustee will be given control by the bankruptcy court to handle and sell your nonexempt properties – or a property that you own that is not protected in bankruptcy – to help you pay off your debts from lenders or creditors.
Chapter 13 Bankruptcy allows you to keep your assets and repay your debt by committing to a restructured payment plan.
Both fall under personal bankruptcy and have their own benefits and drawbacks, but some people would consider Chapter 7 over the other as it pays off most of their loan debt and gives them a quicker, fresh start.
A Deeper Understanding of How Chapter 7 Bankruptcy Works and its Benefits
Chapter 7 bankruptcy is the most common among all the types of bankruptcy as it is fast, easy, and most importantly – it clears away most of your unsecured debts. These are debts without collateral which includes medical bills, personal loans, and credit card debts.
Before you can file for a Chapter 7 Bankruptcy, you need to qualify first. To qualify, you must:
- Pass the two-part bankruptcy means test. This determines whether you would have enough left from your monthly income to pay back your creditors after your monthly expenses.
- Not have filed a bankruptcy petition in the last 5-6months that was discharged due to non-compliance.
- Not have a recent Chapter 7 or Chapter 13 bankruptcy petition filed in the past six to eight years.
Once you have qualified for a bankruptcy filing, it is recommended that you:
- complete credit counseling with a nonprofit credit counseling agency,
- seek the guidance of a capable and skilled Chapter 7 Bankruptcy Attorney in Chicago
The bankruptcy attorney will assist you with filing the necessary paperwork to support your petition. Immediate paperwork filing can result in an automatic stay that prevents your creditors from suing you, legally withholding your paycheck (wage garnishment), or incessantly contacting you for payment.
The first three steps are the most crucial in filing for a Chapter 7 bankruptcy petition. When you have finished filing your documents, the court will appoint a trustee to study your bankruptcy case.
The role of the trustee is to determine your eligibility for the petition and arrange a meeting between you, your lawyers, and your creditor. The trustee also manages the transactions between you and the creditors – such transactions involve the distribution of payments to your creditors once your assets have been liquidated.
In addition to completing credit counseling, the United States bankruptcy court will also recommend that you, as the debtor, must attend and complete a debtor’s education course before your debts can be dismissed.
Sure, the process of bankruptcy filings is tedious, and there are many things to consider. Still, the good thing is you won’t necessarily need a minimum or maximum debt to file for a Chapter 7 bankruptcy. Once you have been approved or at least filed your documents, the creditors are not allowed to harass you for payment, and it substantially discharges most of your unsecured debts 4-6 months from when you filed the bankruptcy. From there, you can start to rebuild your credit again.
Important Things to Note During and After Chapter 7 Bankruptcy Filing
Check with your bankruptcy attorney whether you have filed the correct bankruptcy forms. You don’t need to lose everything after bankruptcy. Every state has a set of bankruptcy exemptions that can help you protect your property.
The trustee in bankruptcy will determine whether your nonexempt property is worth selling to help you get out of debt. If you want to keep a specific non-exempt property, you can negotiate with the trustee on ways to keep it.
You need to declare all debts when you file a bankruptcy. In most cases, you can have a discharged debt even if you forget to list it when you filed for bankruptcy, only when your bankruptcy case is a no-asset case.
Not all debts can be wiped out or eligible for discharge. Under the U.S. Bankruptcy Code, different types of debt cannot be discharged. Most common are alimony, child support, unpaid taxes, and student loans.
The Importance of Hiring a Bankruptcy Attorney in Chicago, Illinois
Doing things by yourself may be possible in this day and age since information is easy to obtain. Nevertheless, you should not discount that asking for legal help from a professional is always the best way to deal with bankruptcy. Our team of competent bankruptcy attorneys at Cutler & Associates will not only guide you through the process. They will also help find a solution to your financial difficulties.