What Are The Different Types Of Bankruptcies For Individuals – Bankruptcy is an option if you have too much debt. Find out if bankruptcy protection is right for you, the differences between bankruptcy types, when to file, and what to expect.
It can be confusing to differentiate between the different types of bankruptcy and know when is the right time to file.
What Are The Different Types Of Bankruptcies For Individuals
In this guide, we’ll cover Chapter 7 and Chapter 13—the two most common types of bankruptcy—and will explain what happens when you file for bankruptcy, how to do it, and the questions you should ask yourself to determine whether bankruptcy is a bankruptcy. right for you. You
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Bankruptcy is a legal process for individuals or companies who cannot pay their debts. You can go bankrupt in one of two main ways. A more common way is to file for bankruptcy voluntarily. The second way is for creditors to ask the court to order bankruptcy.
If you decide to file for bankruptcy yourself, there are several ways to do so. You may want to consult with an attorney before proceeding so you can find the best fit for your situation.
There are other types of bankruptcy filings that are less common and more expensive for small businesses, such as Chapter 11. This type of bankruptcy is intended for businesses with debts of $2.5 million or more, or for businesses owned by an LLC or partnership. Chapter 11 bankruptcy is similar to Chapter 13 but is usually only for businesses.
The Small Business Administration Act of 2019 made Chapter 11 less expensive for small businesses, giving them more flexibility in negotiating bankruptcy terms with creditors. But this is still less than Chapter 13. You may want to talk to an attorney if you feel Chapter 11 bankruptcy is right for your company.
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Filing for bankruptcy will automatically keep your creditors’ claims from harming you. This means your creditors must stop trying to collect the money you owe them. They will not be able to:
Your case will be assigned to a bankruptcy trustee, who is the attorney who will oversee your case. The officer will send a notice to your creditors and schedule a hearing.
From there, the process depends on whether you have filed for protection under Chapter 7 or Chapter 13 of the federal bankruptcy code.
Chapter 7 is one of the most common types of bankruptcy. In Chapter 7 bankruptcy, you will:
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There are certain assets – such as cash, clothing, household items, and a limited amount of cars – that you are allowed to keep, but these exceptions vary depending on the state where you live.
Once your assets are paid off and your creditors are paid off, the remainder of your debt will be forgiven unless you reaffirm your debt. Debt reaffirmation is when you voluntarily give up protection through a bankruptcy discharge and agree to be responsible for the debt. Reconfirmation is chosen to preserve certain assets and avoid liquidation.
Not everyone can file Chapter 7 bankruptcy. If your income is too high, you may need to file Chapter 13 bankruptcy.
If you can’t file Chapter 7 bankruptcy, or if you have some money to pay off creditors and have assets you want to keep, Chapter 13 bankruptcy may be an option for you. In Chapter 13 bankruptcy, you will:
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Once these milestones are met, the remainder of your debt that qualifies for credit will be paid off.
Chapter 13 is a good option for people on a fixed income who have enough money left over each month to pay their debts but want breathing room and more time to pay off their debts.
Depending on how you choose to declare bankruptcy, your assets and liabilities will be affected in different ways. In Chapter 7 bankruptcy, many of your assets must be liquidated to pay your creditors. In Chapter 13, you accumulate assets while working on your debt repayment plan.
For small business owners with a lot of personal debt, bankruptcy can help them stay in business. It is important to note that business debts are not discharged by Chapter 7 or Chapter 13 unless you are the sole owner and personally liable for the debts.
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Certain business assets may be excluded from a Chapter 7 bankruptcy filing. For example, if your business is service-based and does not maintain significant equipment or inventory, you may be able to continue running your business after paying off your business debts through bankruptcy.
There is no form of bankruptcy that can relieve student loan debt. Some people, such as some government employees, qualify for student loan forgiveness that does not involve filing for bankruptcy.
If you need help managing student loan debt, you should look for a lender to help you manage repayment options or consider debt consolidation.
In a bankruptcy petition, your home and mortgage will be listed as assets to determine your ability to repay. Depending on the type of bankruptcy filing you make, your mortgage may be affected in different ways:
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If you choose to confirm your mortgage in Chapter 7 bankruptcy, you may be liable for your mortgage after your bankruptcy proceeding. If you can’t make your repayments, you won’t be able to file Chapter 7 bankruptcy for several years, and creditors may be able to sue you to collect them.
To declare and file bankruptcy, you will need to complete credit counseling classes to learn about bankruptcy, options, and managing your own finances.
After completing the course, you must file a petition with the United States Bankruptcy Court in the federal district where you reside. This app will list:
You will also need to submit a copy of your most recent tax return with your petition. You can have an attorney prepare a petition for you, or you can request bankruptcy forms and instructions from a U.S. court.
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Chapter 7 is sometimes referred to as “immediate bankruptcy.” Chapter 7 Bankruptcy liquidates your non-exempt assets to pay off as much of your debt as possible. Cash from your estate is distributed to creditors such as banks and credit card companies, and you will usually receive notice within four months.
To file Chapter 7, you must pass a bankruptcy test. The only people excluded from this are disabled veterans who file bankruptcy to pay off debts incurred while they were on active military duty or who have debts arising from business operations.
Your bankruptcy record will remain on your credit report for 10 years. But for many, Chapter 7 offers a new beginning.
Chapter 13 bankruptcy is also called bankruptcy reorganization. Chapter 13 allows people to pay off their debts over three to five years. For individuals with consistent and predictable annual income, Chapter 13 provides a grace period. All remaining debts at the end of the grace period will be repaid.
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Once bankruptcy is approved by the court, creditors must stop contacting the debtor. A bankrupt person can continue to work and pay off their debts for years to come and still retain their assets and property.
Most people take their financial obligations seriously and want to pay off their debts in full, but knowing when to file bankruptcy and when to negotiate or use other strategies can help you on your path to financial health.
Below is a list of questions that can help you assess your financial health and give you insight into whether bankruptcy is right for you. You should also discuss these questions with an attorney.
Credit cards usually have high interest rates on open balances. This means your balance can balloon quickly if you only make minimum payments. If your balance is high to begin with, it can quickly get out of control.
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Constant phone calls from debt collectors can be an annoying and stressful reminder of what you owe. Call each creditor and see if they are willing to negotiate a lower balance or lower monthly payment.
Paying for basic needs with a credit card earns interest on the purchase. Therefore, you should only pay for these items with a debit card.
Debt comes from many sources. Consolidating your payments into one large loan can help you keep track of your debt with one monthly payment. This can also add more time to your repayment because the new loan will come with new repayment terms.
Facing a car foreclosure or repossession may be difficult, but taking these difficult steps can help you pay off debt and avoid filing for bankruptcy.
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Your expenses should be covered by your income and there is a buffer room for emergencies. If your monthly payments exceed your take-home pay, you could potentially go bankrupt.
Uncertainty about all your debts is cause for concern. Whether your balance is growing and you don’t know the total amount, or you forgot which creditor sent you the debt for collection, you should consider other payment options if you can’t determine how much you owe.
Bankruptcy does not discharge all debts indiscriminately. Some debts, such as student loans, cannot be discharged in bankruptcy. If you’re having trouble paying off your debts, bankruptcy won’t cover it, hands down.