Chapter 7 vs. Chapter 13 Bankruptcy

There are two common types of personal bankruptcy, Chapter 7 and Chapter 13. Chapter 7 bankruptcy is also known as “liquidation” bankruptcy, as it involves selling off your assets to pay off your debts. Chapter 13 bankruptcy, on the other hand, allows you to keep your assets and develop a repayment plan over three to five years.

Qualifying for Bankruptcy

To qualify for bankruptcy, you will need to pass a “means test” that determines whether your income is low enough to qualify for Chapter 7 bankruptcy or high enough to require a Chapter 13 repayment plan. Additionally, you will need to complete a credit counseling course within 180 days before filing for bankruptcy.

Filing for Bankruptcy

To file for bankruptcy, you will need to gather all of your financial documents, including tax returns, pay stubs, and bank statements. You will also need to complete a series of forms that detail your income, expenses, debts, and assets. Once you have completed the necessary paperwork, you will need to file it with the bankruptcy court.

The Automatic Stay

Once your bankruptcy petition is filed, an “automatic stay” goes into effect, which stops most collection actions by creditors. This means that they cannot garnish your wages, seize your assets, or contact you to collect a debt.

Meeting of Creditors

Approximately a month after your petition is filed, you will be required to attend a “meeting of creditors.” This meeting is a chance for your creditors to ask you questions about your finances and your bankruptcy petition.

Discharge of Debts

If your bankruptcy is successful, your unsecured debts, such as credit card debt and medical bills, will be discharged, meaning you will no longer be responsible for paying them. However, some debts, such as student loans and taxes, are not dischargeable in bankruptcy.

Rebuilding Your Credit

After filing for bankruptcy, it may take time to rebuild your credit. However, there are steps you can take to begin the process. These include obtaining a secured credit card, making timely payments on all of your bills, and checking your credit report regularly for errors.

Conclusion

Filing for bankruptcy is a difficult decision, but it can provide a fresh start for those struggling with overwhelming debt. If you are considering bankruptcy, it is important to understand the process and the potential impact on your financial future. We hope this guide has been helpful in explaining how to file for bankruptcy and get a fresh start.

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