So you find yourself buried in debt. Debts that you will never be able to dig yourself out of unless you hit the lottery. Well, waiting for the lottery might not be the best choice. Sometimes bankruptcy is your best option for restarting your finances and getting your life back on track. Whereas bankruptcy isn’t something anyone wants to do, it is sometimes the most sound financial decision you can make. Pursuing bankruptcy is a difficult decision, but if if you are considering it, the first step is learning what what type of bankruptcy may be best for you.
Chapter 7 and Chapter 13 are the main types of bankruptcies for individuals. First you need to understand the difference between the two types of personal bankruptcy so you can decide which may be your best option.
Overview of Bankruptcy Types: Chapter 7
The most common type of bankruptcy is Chapter 7. Both individuals and businesses can file for Chapter 7, also called a straight bankruptcy. In a Chapter 7 your assets can be sold to pay off your debts. However, not every debt is dischargeable through bankruptcy. The assets that can be sold off are called Nonexempt assets. These assets are turned over to a trustee. The trustee liquidates the assets and pays creditors part or all of your debts with the proceeds from your assets.
The advantage of Chapter 7 is that regardless of the amount of debt the trustee is able to pay off from your assets, your creditors are no long allowed to collect any funds directly from you. This is the protection you receive under bankruptcy law in New York State. Any remaining balances owed to the creditors after the trustee pays whatever can be paid are cancelled and you are no longer responsible for the remaining debt. These debts are then discharged under Chapter 7. Certain types of debts are exempt for Chapter 7 and cannot be discharged. Examples of exempt debts under Chapter 7 are:
- Alimony and child support
- Drunk driving judgments and criminal fines or restitution
- Debts incurred by fraud or intentional wrongdoing
- Back taxes under 3 years old
- Student loans
- Recent purchases involving substantial amounts
- Properly executed contracts involving titles or liens such as land or automobiles
*A chapter 7 bankruptcy can remain on your personal credit reports for up to 10 years.
Overview of Bankruptcy Types: Chapter 13
Chapter 13 Bankruptcy is more of a reoginization of your debts into into a manageable debt repayment schedule over three to five years. You “reaffirm,” or repay your debts from 10-100% of what you owe. This amount you are responsible for depends on your income, the nature of your debt, how much you owe, and your ability to pay back your debt.
The following debts can’t be discharged under Chapter 13:
- Alimony and child support
- Drunk driving judgments and criminal fines
- Student loans
*A Chapter 13 bankruptcy can remain on your personal credit reports for up to 7 years.
Reasons for Choosing Chapter 7
Consider selecting a Chapter 7 bankruptcy if the following reasons apply:
- You have no hope of repaying the debts
- You have debts without co-signers
- You’re about to be sued by creditors, or have been sued by creditors
- You have personal property that you want to protect
- You have income you want to protect
- You have income deductions due to judgements from creditors
- You don’t qualify for Chapter 13 because of income requirements or other factors
Reasons for Choosing Chapter 13
Consider Chapter 13 bankruptcy for these reasons:
- You’ve already filed Chapter 7 in the past six years
- You have debts with cosigners
- You can pay your debts within three to five years
- Your income disqualifies you from Chapter 7
- You need relief from collection proceedings and you want to pay your creditors, but you’re unable to under the current terms
- You wish to leave open the option of filing a Chapter 7 bankruptcy some time in the future
- You’re behind on your mortgage and owe back taxes, and you want to protect your assets that would otherwise be liquidated if you file Chapter 7
Legal Representation for Bankruptcy
Once you decide which type of bankruptcy is best for you, you will need an attorney to represent you during the proceedings. Here are some basic questions to ask your attorney:
- Will all of my assets be liquidated?
- Will my back taxes be discharged?
- What are nonexempt assets?
- Can I avoid losing my house?
Bankruptcy can be a difficult thing to go through, but many people find themselves in a financial bind they simply cannot get out without the help brankruptcy law provides. That’s why it was created as an option under the law. Is bankruptcy your best option? Talk it over with your attorney and come up with a game plan to get your life back on track.