No two people end up in the same financial tangle, which also means that they are probably not going to deal with their situation in the same way. You may find yourself in a challenging situation due to an illness or injury or even through the sudden loss of a job. Your credit card debt may have gotten out of hand and now you have huge sums to pay and no income to do so. What is the solution? This is where people seek relief from their debts through bankruptcy. Obviously, there are pros and cons of filing a bankruptcy petition and you need a lawyer specializing in this area to help you out. Why?
This is primarily because there are different kinds of bankruptcy petitions that can be filed. You have to determine whether you need to file Chapter 11, Chapter 7 or Chapter 13 bankruptcy, depending on your situation. In order to do so, you need to understand the difference between the three types of bankruptcies which are highlighted below:
Chapter 7 Bankruptcy
The most common kind of bankruptcy that’s filed by people is Chapter 7, which is also known as liquidation bankruptcy. Some consider the name inappropriate because in reality, no property is actually taken from the person and liquidated. The purpose of this kind of bankruptcy is to wipe out the general unsecured debt that you may have such as medical bills or your credit card dues. You can qualify for this kind of bankruptcy only if you have little or no disposable income for repaying your debt.
Once you file for Chapter 7 bankruptcy, a trustee is appointed for handling your case, which involves reviewing the bankruptcy papers as well as any supporting documents that are required. Another responsibility of the trustee is to sell any nonexempt property that you may own for paying back your creditors. Your creditors will get nothing if you don’t have any nonexempt property. Therefore, this kind of bankruptcy is considered suitable for low-income debtors who wish to eliminate their unsecured debt and have little or no assets.
Chapter 11 Bankruptcy
Also known as rehabilitation bankruptcy, chapter 11 bankruptcy is mostly associated with businesses even though some individuals can apply for it as long as they meet some requirements. The term rehabilitation is used because this kind of bankruptcy enables the firm to reorganize its debt in order to come out as a healthy organization. This means that the business will get in touch with its creditors for negotiating the terms of the loan such as the rate of interest. A trustee is also appointed in this case, but they don’t sell assets. They just supervise and let the business continue its operations. Thus, Chapter 11 doesn’t eliminate the debt; only the terms are changed and it still has to be paid back from future earnings.
Chapter 13 Bankruptcy
Referred to as the reorganization bankruptcy, chapter 13 is aimed at debtors who have regular income and can pay back at least a portion of what they owe through a proper repayment plan. This kind of bankruptcy allows you to keep all your assets including the nonexempt ones. In return, you have to come up with a repayment plan for paying back your debts, which is designed after taking your expenses, income and types of debt into account. Those people who make too much money may not be able to qualify for a Chapter 7 bankruptcy and have to file for Chapter 13 and the latter does have some benefits to offer.
Hence, you need to decide which category you fall in before you file for bankruptcy.