If you're thinking about filing personal bankruptcy to help you get some relief from your debt, you're not alone—nearly 1.5 million people filed bankruptcy in 2009.
Whether you're considering filing Chapter 7 bankruptcy to break free from credit card debt or Chapter 13 bankruptcy to stop foreclosure or to get on a repayment plan, it's natural to have questions about filing bankruptcy.
We've provided some general information that may help answer your bankruptcy questions, but a bankruptcy lawyer may be able to help you further. We'll put you in touch with a local bankruptcy lawyer for a free no-obligation initial consultation. Simply fill out our quick bankruptcy case evaluation form to get started now.
What's the Difference Between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy addresses credit card, medical and some other unsecured debts by excusing (discharging) those debts. After those debts are discharged, the debtor is no longer obligated to pay them.
Chapter 13 bankruptcy works to protect property through a 3-5 year repayment plan.
Depending on your specific needs, either Chapter 7 or Chapter 13 bankruptcy may make more sense for you. A local bankruptcy attorney can walk you through the qualifications for each and the pros and cons of each type of bankruptcy given your particular circumstances.
How does Chapter 7 work?
Chapter 7 bankruptcy is also known as "liquidation". During a Chapter 7 case, the bankruptcy trustee has the option of selling the debtor's non-exempt property in order to pay some creditors.
But don't panic — many Chapter 7 bankruptcy filers get to keep all of their property because each state has its own bankruptcy exemptions (items that generally cannot be liquidated during Chapter 7). Of course, speaking with a local bankruptcy lawyer is a great way to examine in more detail whether Chapter 7 liquidation might be right for you and learn about the exemptions in your state.
How does Chapter 13 work?
Chapter 13 bankruptcy provides many debtors with the opportunity to keep secured property like homes and cars while entering into a 3-5 year repayment plan.
Chapter 13 bankruptcy is also known as a reorganization of debts, as past due balances are built in to the repayment plan. In some cases, unsecured debts remaining at the end of the repayment plan may be discharged.
How long does bankruptcy take?
Generally speaking, Chapter 7 bankruptcy cases move quickly. Some people have exited Chapter 7 bankruptcy in as little as a few months. Most cases take between 4 and 8 months.
On the other hand, Chapter 13 bankruptcy cases are much longer and last over the length of the repayment plan period, which is typically between 3 and 5 years.
Which personal bankruptcy option is right for me?
This question can't be answered without assessing your current financial circumstances, something that's generally best left in the hands of a local bankruptcy lawyer.
However, there are some typical circumstances that often trigger one type of bankruptcy or the other. For instance, people often pursue Chapter 7 bankruptcy if they have a lot of unsecured debt and are having trouble keeping up with monthly payments.
On the other hand, Chapter 13 bankruptcy is often appropriate for people who own homes, cars, or other property with significant equity, have a regular source of income and can make regular monthly payments but have fallen behind because of a short-term problem.
What is the new bankruptcy law?
In 2005, a new bankruptcy law took effect. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (also known as BAPCPA) requires each potential bankruptcy filer complete a credit counseling briefing prior to filing bankruptcy and a debtor education course after filing bankruptcy and prior to receiving a discharge. For Chapter 7 filers, BAPCPA also instituted a means test to determine whether you qualify for this form of personal bankruptcy.
Although these new requirements have added more work to filing bankruptcy, this doesn't necessarily mean that it's "harder to file". In fact, most people have found that they still qualify to file for Chapter 7 bankruptcy after the bankruptcy law changes went into effect.
What is the Chapter 7 means test?
The Chapter 7 means test is a two-step process which determines whether or not you qualify to file Chapter 7 bankruptcy. But don't be thrown off by the word "test" — the Chapter 7 means test is not like tests you had to take in school.
The first step of the means test includes a comparison of your income with the median income level in your state for a family that is the same size as yours. Generally, people at or below the median income level "pass" this step of the means test and are eligible to file Chapter 7 bankruptcy.
Those who don't "pass" simply move on to the next step of the means test, which calculates monthly disposable income. Generally, people whose disposable income over the next five years is less than $100 a month "pass" the second step of the means test and may file Chapter 7 bankruptcy. There is even a possible buffer zone for some people whose disposable income is a little higher.
As the means test can be a bit complicated, it's a good idea to work with a local bankruptcy lawyer who can help you figure out whether you're eligible to file Chapter 7 bankruptcy.
Keep in mind that if you don't qualify to file Chapter 7, you may be able to file Chapter 13 bankruptcy.
Does Chapter 13 bankruptcy have a means test?
No. But although there's no technical Chapter 13 means test, there still are some requirements you must meet in order to file Chapter 13 bankruptcy. For instance, Chapter 13 bankruptcy is available only for those who have unsecured debts less than $360,475 and secured debts less than $1,081,400. A local bankruptcy lawyer can help you figure out whether Chapter 13 or Chapter 7 bankruptcy might work for you.
What is the bankruptcy automatic stay?
A powerful protection when you file bankruptcy, the bankruptcy automatic stay is a court order that prohibits most collection actions during a bankruptcy case. The automatic stays often stops credit harassment and many forms of foreclosure, repossession, wage garnishments and lawsuit.
The automatic stay will usually take effect immediately after the bankruptcy petition is filed.
Do I need a bankruptcy lawyer?
That's your call, entirely. You're not required to hire a lawyer to file bankruptcy. However, here are some reasons you may want to speak with a bankruptcy lawyer before making any decisions:
The bankruptcy process can be complicated, especially for someone who may not be well-versed in bankruptcy law. A bankruptcy lawyer can guide you through the process, helping to determine your eligibility and ensure that you don't miss any critical steps or dates and that your paperwork is in order.
Even if you don't file bankruptcy, it can't hurt to speak with a local bankruptcy lawyer who can explain your debt relief options. Understanding your options is the first step toward making powerful decisions about your financial life. At Clear Bankruptcy, we can easily put you in touch with a nearby bankruptcy lawyer. Simply fill out the below 60-second form to get started.