What is Bankruptcy?
Bankruptcy is a proceeding under federal law wherein you file a petition and other documents with a Bankruptcy Court. Immediate relief is provided as soon as you file the case in the form of a “stay” order, issued by the Court. This order acts as a legal injunction against all of your creditors, preventing them from garnishing your wages, repossessing a car, foreclosing on your house, or contacting you in any manner.
At the end of the case, the Court issues a discharge order, relieving you from the responsibility for repaying your debts. However, there are several kinds of debts that are not discharged by this order, including child support, certain taxes, and student loans, to list a few.
Types of Bankruptcy
Generally speaking, for consumer debtors, the two types of bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Also known as “liquidation,” Chapter 7 bankruptcy is the type of bankruptcy where the debtor is essentially declaring that they are unable to pay their debts with future earnings. The debtor is seeking a discharge of all their dischargeable debt and in exchange, the trustee has the power to take the debtor’s non-exempt property and liquidate it (sell it). The trustee would then use the proceeds to pay the creditors. In practice, however, very few cases result in the trustee taking assets, as the debtors can exempt all of their assets. For more information about Chapter 7 bankruptcy, please click here.
Chapter 13 Bankruptcy
With this type of bankruptcy, the debtor pays toward their debt through a payment “plan” over a 3 to 5 year period. There is no “liquidation” in a Chapter 13 bankruptcy, so there is no chance the debtor will lose their property they own at the time of filing. In fact, this is a common reason individuals choose to file a Chapter 13 over a Chapter 7—because they have an asset they do not want to lose, that they would otherwise lose if they filed a Chapter 7.
The amount of your payment plan varies from case to case and is often dependent on your assets, your income, and the kinds of creditors you have. For more information about Chapter 13 bankruptcy, please click here.
Determining Which Chapter to File
This decision is something that is discussed in full detail with Mr. Holcomb during the initial consultation. In most cases, we can determine the best type for your situation during this visit. Factors that affect this decision include your household income, assets, and types of debts. Making the best decision for your unique situation is one of the cornerstones for why you should hire an attorney to handle your bankruptcy.
If you are contemplating bankruptcy, and are unsure of where to start, do not hesitate to contact Holcomb Law Office, P.C. today for guidance and support.