What are the Common Types of Bankruptcy?
Bankruptcy is the legal process in which people who cannot repay their debt obligations (called debtors) can be discharged of most kinds of debt. Chapter 7 and Chapter 13 are the two kinds of bankruptcy that are most common. Continue reading to receive a brief introduction to Chapter 7 and Chapter 13 bankruptcies.
Even if you are not personally considering whether to file for bankruptcy, a filing of bankruptcy may still affect you if, for example, you have loaned someone money and hope that person will repay you over time. Or, perhaps you store other people’s valuable property that could be used to satisfy their debts. These are just two examples of situations when a bankruptcy filing by someone else may require you to take certain action to ensure your own interests are represented.
In a Chapter 7 bankruptcy, all non-exempt assets are sold. A trustee is assigned to gather and sell the assets. The trustee then pays any debts to the creditors in order of priority. This kind of bankruptcy is the simplest option and is often used when the debtor does not have a regular income or the debtor does not have many important assets to keep. To declare Chapter 7 bankruptcy, a debtor must meet certain requirements. The debtor must have an average household income that is less than the median income for a similarly sized household. If the debtor exceeds this income limit, a “means test” must be applied to determine the debtor’s eligibility.
In a Chapter 13 bankruptcy, those who have debt can create a “plan” to pay creditors for a period of three to five years. This kind of bankruptcy is only available to people who have a regular income. The process takes longer than Chapter 7 bankruptcy but can work well for those who do not want to sell their property. Unlike Chapter 7 bankruptcy, there is not an income limit or requirement to meet. However, there are limits on the amount of secured and unsecured debt that a debtor may owe to qualify.
It is important to note that there are some kinds of debt that generally cannot be discharged through a bankruptcy filing. Some of these financial obligations include child support, spousal support, student loans, and unpaid taxes.
There are many factors to consider when deciding what kind of bankruptcy is the best choice for a debtor’s unique situation. Some factors include recent or long-term unemployment, the amount and kind of assets owned, the affordability of a debtor’s mortgage, and many more. Because there are so many factors to weigh, an attorney can be helpful in assessing a debtor’s situation. Contact an attorney at Kelly & Brand, Attorneys at Law, LLC for personalized legal advice.