Bankruptcy is a legal process where you can eliminate or repay some or all of your debts. It gives you a financial “fresh start”, relieving you from the overwhelming stress of your debt burdens.

Deciding to file bankruptcy can be a very difficult decision. In order to decide if bankruptcy is the right decision for you, ask yourself if you are able to pay off your existing debts in 3 years with the money you have available after paying your monthly living expenses. If the answer is no, then bankruptcy might be the right choice for you. If you have expendable income to make your monthly debt payments, then you might consider alternatives to bankruptcy such as debt settlement or repayment plans.

For the most part, bankruptcies can be divided into two types; liquidation and reorganization. The choice of which bankruptcy chapter to file depends on each individual’s financial situation. The means test will identify which chapter an individual will qualify for by examining your income and expenses to see how they compare to the median income in your state.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the single most common bankruptcy chapter filed in the United States and it is the simplest and quickest form. It can be filed by individuals or businesses and typically lasts between four to six months.

It is commonly known as liquidation bankruptcy and involves the selling of some of your property by the trustee to pay back some of your debts. However, you may keep property that is protected (exempt) such as clothes, car, and household furnishings. Most or all of your unsecured debts will be erased. Please note that the bankruptcy may not affect property in which payments are current.

Chapter 13 Bankruptcy

This Chapter is a reorganization bankruptcy also known as the ‘wage earner’ bankruptcy. Only those with a reliable source of income are allowed to file for Chapter 13. If you have more property that can be exempted or if you are in default with the mortgage or car payment, a Chapter 13 might be better suited to your situation. This type of bankruptcy allows you to keep your property and repay some or all of your debts over a three to five year period. The amount you pay back on the debt is determined by your income and the current value of the property, not by how much you owe. Any remaining balance owed at the end of the Chapter 13 bankruptcy will be erased.

Although you can file a bankruptcy case without an attorney, you should be aware that the process is complicated and riddled with many rules and exceptions to those rules. Failure to follow those rules correctly can result in an automatic dismissal of your case and you could be in danger of losing your property.

If you are contemplating bankruptcy, our firm offers a free consultation and we will help you decide if bankruptcy is the best alternative for you.