Your Bankruptcy Options

Filing for personal bankruptcy is a painful option of last resort for most people. So much so it may be hard to even look at or consider. But taking a look at what your options are now may serve as a sobering wake up call to addressing your situation before it's too late. If you're already facing bankruptcy it's time to consider what type to file.

  • Chapter 7
  • Chapter 11
  • Chapter 13

Bankruptcy is a way of legally declaring that you are unable to pay your debts and to have them eliminated by a judge in a federal bankruptcy court. If you decide to file for personal bankruptcy there are 3 common types you can file for.

Chapter 7 - Straight Bankruptcy

Chapter 7, sometimes referred to as a "straight" or "liquidation" bankruptcy, is the most common among individuals. Depending on your situation Chapter 7 may allow you to keep your property while erasing your debt. You begin by surrendering all your non-exempt property to a bankruptcy trustee who then sells it and uses the money to pay down any unsecured debts like credit cards or medical bills. (Unsecured debt is debt where there are no assets held against them as collateral.) However, much of your property may be "exempt" from liquidation meaning you won't have to sell it. Household goods, clothes and even an old car can be exempt from liquidation. The type of property that's exempt varies state-by-state. For secured debt like a car loan or a home mortgage you have some options to try and work out a payment plan with your creditor to avoid foreclosure or repossession. Many people who file Chapter 7 find all of their property exempt and have their debts erased without having to liquid anything. While Chapter 7 can eliminate most debt there are certain exceptions like alimony, child support and some taxes.

Chapter 13 - Create a Payment Plan and Keep Your Property

If you have income and own a home Chapter 13 might be a better option than Chapter 7. In Chapter 13 you can maintain your property and assets and save your home from foreclosure by agreeing to repay creditors over 3 to 5 years. Chapter 13 works like a debt management plan where you avoid contact with your creditors and your secured debt is now paid through one Chapter 13 trustee. Your payments are lowered from where they were and rescheduled over the course of the plan. The payment amount is based on the level of your income and the level of your debt. There are eligibility requirements to qualify for Chapter 13 including a limit of $336,900 of unsecured debts and $1,010,650 of secured debts.

Chapter 11 - Restructuring High End Debt

Chapter 11 is primarily used by businesses to reorganize their debts and repay them over a period of time. It can also be used by individuals who have an unusually large amount of debt. The person retains their assets and continues to manage their day-to-day finances while the court works out a repayment plan with the creditors.

Before deciding to file for bankruptcy you should seek the opinion of a lawyer or financial counselor. But in the end it's your decision so the sooner you get the facts about bankruptcy the better decision you're going to make.

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