What is Bankruptcy?
Bankruptcy is a legal process wherein people or businesses struggling with debt and cannot repay their creditors may seek relief from some of their qualified debts. It starts with the filing of a petition by the debtor to allow them freedom from their debts. At the same time, the court provides the creditors with an opportunity to recoup the money owed to them.
There are different types of bankruptcy in a bankruptcy code, and they are:
- Chapter 7
- Chapter 9
- Chapter 10
- Chapter 11
- Chapter 12
- Chapter 13
- Chapter 15
From the bankruptcy chapters listed above, the most common bankruptcy options taken are Chapter 7 and Chapter 13. Your Surprise, Arizona bankruptcy law firm can explain the differences to you in more detail.
Chapter 7 bankruptcy is the liquidation of a debtor’s assets to pay off their creditors. In contrast, Chapter 13 bankruptcy is a type of debt settlement where the debtors undertake a reorganization of their finances under the supervision of the federal courts.
Which bankruptcy chapter should you file?
This depends on which type of bankruptcy you qualify for. Under bankruptcy laws, there is no minimum amount of total debt for you to be eligible for a bankruptcy filing. As long as you need help with your financial problems or you want to avoid property foreclosure and repossession, you can file for bankruptcy. If you want to stop your debt collectors from constantly harassing you, you can also consider filing bankruptcy.
Bear in mind that the United States bankruptcy court decides whether you should be dismissed from paying your debts or if you can have a restructured payment plan. So, before you file a bankruptcy petition, it is most recommended that you seek legal help from a reliable bankruptcy attorney that has a good track record in helping individuals get debt relief.
Terms you need to know in bankruptcy
Once you have had your legal consultation with your Chapter 7 bankruptcy attorney, the next crucial step is to fill out the necessary bankruptcy forms and pay the fees for the petition to begin. Make sure that you list all your assets and liabilities in your bankruptcy forms and any other existing debts. Failure to do so may result in the dismissal of your bankruptcy case.
After you have filed your bankruptcy petition, the following are expected to happen:
- The bankruptcy court will require you to take the means-test
- The court puts the automatic stay in place
- You will be asked to attend credit-counseling with a court-approved credit counselor
- A bankruptcy trustee will handle your assets and their liquidation to pay off your creditors
- The court will set a meeting with creditors
- Your debts will either be discharged or dismissed.
When you file your bankruptcy petition, you are required to take the means test to know whether you qualify for bankruptcy or not. This also determines which bankruptcy chapter you’re qualified to pursue. This test evaluates your family’s total income from the past six months. It compares it with the median income of the same family size in your state. If your income is lower than the state median, you qualify for Chapter 7. Suppose your income is higher than the median income. In that case, they will proceed to the second part of the test. Your living expenses will be deducted from your monthly income to check if you have enough disposable income left to pay off your creditors.
It is a kind of bankruptcy protection ordered by the federal court to stop creditor harassment, wage garnishments, property foreclosure, and attempts to repossess collateral during the bankruptcy case.
Bankruptcy trustee role
The courts will assign a United States bankruptcy trustee to your case during the proceeding. The trustee will handle which non-exempt assets are eligible to be liquidated and conduct negotiations with your creditors.
What to do and expect after qualifying for Chapter 7 bankruptcy
After the court has decided that you qualify for a Chapter 7 Bankruptcy petition, make sure to file for bankruptcy exemptions. Filing for an exemption would protect any qualified assets or properties from being liquidated.
You can file for exemption for the following:
- Household furniture
- A portion of your equity
As per bankruptcy laws, you are also allowed to reaffirm your secured debts during a bankruptcy case. Reaffirmation would protect your collateral from being repossessed. This type of agreement would also allow you to continue paying your debt according to the original payment terms.
Different Types of Debts
There are three different types of debt, and not all of them can be wiped out.
This includes a mortgage loan or car loan or any loan with collateral that the creditor has a lien on, and they can repossess should you default on the loan qualifies under this type of debt.
The exact opposite of secured debt. This type of loan without collateral includes medical bills, credit card debts, short-term personal loans, utility bills, and student loans.
Priority unsecured debt
This is a non-collateral loan that takes high priority over your other loans. This includes alimony or spousal support, child support, payment to injury you have inflicted while intoxicated, government debts, criminal fines and fees, and some tax obligations.
Among the three types of debts, only the priority unsecured debt is not qualified to be discharged since it is your legal responsibility to pay them.
Bankruptcy, of course, is not good. But it is not bad either. There’s more to filing bankruptcy than meets the eye. However, the bankruptcy filing does affect your credit standing, and it will stay in your record for seven to ten years. Sure, you will not be totally out of debt after bankruptcy. You still need to settle your priority unsecured debts, but this could be a good way for you to have a fresh start and not incur additional debts. You can start rebuilding your credit again and get back on track in no time.
After the bankruptcy is discharged, it is also best to attend debt management courses to help you manage your finances and have a better financial future.
The role of a Surprise, AZ bankruptcy lawyer
Paying for attorney fees on top of your bankruptcy fees can make you question if it is even worth it. A reliable bankruptcy attorney has much experience in the field. You are hiring them for their expertise and knowledge about bankruptcy rules and laws. A competent bankruptcy attorney can make the whole process easy enough and convenient for you and make you feel that you are not alone.