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What Are The Two Most Common Types Of Consumer Bankruptcies

Save Your Home With Chapter 13

Bankruptcy Basics – Part 2: Types of Bankruptcy

Chapter 7 does not discharge all types of debt, such as student loans, child support obligations, certain tax debts, and loans which are secured by collateral, such as car loans and home mortgages. Also, in order to be eligible for Chapter 7, you have to pass a means test, and many people have too much disposable income to qualify for Chapter 7. It is generally much easier to qualify for a bankruptcy under Chapter 13.

In a Chapter 13 proceeding, rather than receive a discharge of debt following a sale of non-exempt assets, your debts are consolidated and repaid over a three or five year plan, enabling you to more comfortably meet your obligations with the constant pressure of bill collectors or the worry that you cannot afford to pay your bills. Many debts can also be negotiated down or discharged in this process. If you are in default on your mortgage and the bank is foreclosing, Chapter 13 can stop this process, enabling you to catch up on any missed mortgage payments by rolling them into your Chapter 13 plan. If you have a second mortgage, and your home is under water, that second lien may be stripped away in bankruptcy.

Series: Too Broke For Bankruptcy

How Bankruptcy Fails Those Who Need It Most

The two main bankruptcy options available to people overrun by consumer debt are Chapter 7 or Chapter 13. The options differ greatly in how they work and the relief they provide. Below are the basic attributes of each chapter, as well as statistics drawn from ProPublicas analysis of bankruptcy filings from 2008-2015 to show what types of debtors are choosing each chapter and how successful they are at having their debts wiped away or discharged. This guide is part of our series on bankruptcy, which takes a close, critical look at the system and its shortcomings.

Chapter 13 Bankruptcy In Florida

In Florida, chapter 13 is the other most common type of bankruptcy filed. Instead of liquidating, under a chapter 13 the court allows the debtor to keep some of his or her property and sets up a plan to pay back all debts over time.

Many people avoid bankruptcy due to misconceptions. They believe it will ruin their credit for the entire time it shows up on their credit report. Typically, a bankruptcy will list on a credit report for up to 10 years or 7 years in the case of a chapter 13.

The reason for this is that a credit-reporting agency is allowed to report bad credit for up to 10 years, so it is better to show a bankruptcy than just 7 to 10 years of bad credit. Even after a bankruptcy, most people can reestablish good credit in as little as 18 to 24 months. Other people do not believe they qualify for a bankruptcy in Florida.

Bankruptcy is not like applying for a loan, as it is a right for any American. In certain cases, a chapter 13 can be denied by a court if a submitted plan is not feasible, but that is an exception to the rule and an individual and instead file for a chapter 7.

In most bankruptcy cases, a debtor can keep debt. Under Florida law, a personâs residence and vehicle is exempt. In many cases, attorneys will recommend that a person even keeps a credit card as long as they can afford it in order to book airline tickets or rent a car if an emergency comes up.

Also Check: Average Interest Rate Car Loan After Chapter 7

What Happens After You File For Bankruptcy

A bankruptcy filing is really only the beginning of the process. Heres what happens next:

  • A trustee will be assigned to your bankruptcy case. They will oversee the liquidation of assets, in the case of a Chapter 7 bankruptcy, or the repayment of debts in the case of a Chapter 13 proceeding.
  • You will go to a 341 meeting of creditors. Creditors can attend, but they usually dont. Youll be asked about your debts and your assets, under oath.
  • Debt collection procedures will be stopped. This is called an automatic stay.
  • You will take a course on financial management to help you better manage debt in the future. This is a requirement to get your debt discharged.
  • Some of your property may be sold or you may begin a repayment plan .
  • Your debts will be discharged.
  • A bankruptcy will decrease your and will remain on your credit report for seven years if you file for Chapter 13 and 10 years if you file for Chapter 7. It will be harder and more costly to get a car loan or mortgage if you have filed for bankruptcy. But if you adhere to your repayment plan and keep up with your other debt obligations, its possible to come out of bankruptcy with a clean slate.

    When To File Chapter 7 Bankruptcy

    The two most common forms of consumer bankruptcy are ...

    There are several warning signs that you should be considering Chapter 7 bankruptcy. Five strong signs that indicate filing for Chapter 7 may be the right solution include:

  • Your debts total more than half your annual income.
  • It would take five years to pay off your debt, even if you took extreme measures.
  • Your debt creates stress in essential aspects of your life, such as relationships and your ability to sleep.
  • You have little to no disposable income.
  • Your monthly income is below the median level in your state.
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    Which One Should I Choose

    Chapter 7 is, by far, the more popular form because its cheaper, quicker and effective at relieving responsibility for debt if you qualify! And thats a big if. You must pass a means test, meaning your disposable income is under the median income in your state. If you dont qualify for Chapter 7, you can always fall back on Chapter 13.

    What Are The Types Of Bankruptcy

    The most common types of bankruptcy are Chapter 7, Chapter 13, and Chapter 11. There is also a Chapter 12 bankruptcy that covers farm debt and commercial fishing debt, and a Chapter 9 and 15 that are less common.

    We will spend the most type on Chapter 7 and Chapter 13 bankruptcy as those are the most common consumer bankruptcy, and its important that you know the differences.

    Also Check: How To File Bankruptcy In Illinois

    How To Prevent Bankruptcy

    Bankruptcy is generally a last resort, for businesses and individuals alike. Chapter 7 will, in effect, put a business out of business, while Chapter 11 may make lenders wary of dealing with the company after it emerges from bankruptcy. A Chapter 7 bankruptcy will remain on an individuals credit report for 10 years, a Chapter 13 for seven.

    While bankruptcy may be unavoidable in many instances , one key to preventing it is borrowing judiciously. For a business, that could mean not using debt to expand too rapidly. For an individual, it might mean paying off their credit card balances every month and not buying a larger home or costlier car than they can safely afford.

    Before filing for bankruptcy, and depending on their own internal legal resources, businesses may want to consult with an outside attorney who specializes in bankruptcy law and discuss any alternatives that are available to them.

    Individuals are required by law to take an approved credit-counseling course before they file. Individuals also have other resources available to them, such as a reputable debt relief company, which can help them negotiate with their creditors. Investopedia publishes an annual list of the best debt relief companies.

    What Are The Types Of Bankruptcies

    Bankruptcy Basics Part 2: Types of Bankruptcy

    Even though the general goal of bankruptcy is to clear debt, not all bankruptcies are created equal. In fact, there are six different types of bankruptcies:

    • Chapter 7: Liquidation

    • Chapter 15: Used in Foreign Cases

    • Chapter 9: Municipalities

    You may have just taken one look at this list and zoned out for second. Thats okay. More than likely, you would only be dealing with the two most common types of bankruptcies for individuals: Chapter 7 and Chapter 13. But well take a look at each type so youre familiar with the options.

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    Will I Lose Property In Chapter 7 Bankruptcy

    Your state decides whether you can use the federal bankruptcy exemptions or state exemption laws. Although exemption laws differ, you’ll typically be able to keep these types of property in bankruptcy:

    • Home equity. A “homestead” exemption protects home equity. You can exempt up to $25,150 under the federal exemptions. Most states allow debtors to protect some home equity, although a few states don’t have a homestead exemption. Find out more about your home in Chapter 7 bankruptcy.
    • Insurance. You usually get to keep the cash value of your policies.
    • Retirement plans. ERISA-qualified plans receive protection in bankruptcy. Find out more about your retirement plan.
    • Personal property. You’ll be able to keep a modest car and most household goods, furniture, furnishings, clothing, appliances, books, and musical instruments. Luxury items aren’t protected, and jewelry may be limited to $1,000 or so. Most states let you keep a vehicle as long as your equity doesn’t exceed several thousand dollars. Many states have a “wildcard” exemption you can apply toward any property. Learn more about what happens to your automobile in your car in Chapter 7 bankruptcy.
    • Public benefits. Welfare, Social Security benefits, stimulus payments, unemployment insurance and the like are protected.
    • Tools used on the job. Most states allow filers to keep up to a few thousand dollars worth of the tools used in a trade or profession.

    How To File Chapter 7 Bankruptcy

    The most important factor in filing Chapter 7 bankruptcy is finding an experienced bankruptcy attorney. Once you decide on an attorney, you can refer creditors to your lawyers office. Filing the petition will trigger an automatic stay, which means creditors cant pursue lawsuits, garnish your wages or contact you about your debts. Heres a potential timetable:

    If youre qualified, it will take 4-6 months to complete the bankruptcy process.

    Here are the steps you must take when filing for bankruptcy:

  • To start the process, the debtor must fill out a long series of forms that detail records of assets, liabilities, income, expenses and overall financial standing, plus any existing contracts or leases in the debtors name.
  • Pre-bankruptcy credit counseling is the next required step for debtors filing under Chapter 7. These course typically are offered by nonprofit credit counseling agencies, who look at your financial situation to determine if there are other avenues that could resolve the issue without having to file bankruptcy.
  • If its determined that bankruptcy is your best solution, then you, or your attorney, must take the forms you filled out in Step 1 and file a petition for bankruptcy at the local bankruptcy court.
  • The next step is to make sure that if you made promises about secured debt usually a home or automobile you fulfilled those promises.
  • Read Also: Can You Get A Personal Loan After Bankruptcy

    Clearing Your Heloc Debt During Bankruptcy

    While a Chapter 7 bankruptcy can be painful in the short- to mid-term and stays on your credit report for years, it can be a very useful tool for consumers facing otherwise overwhelming financial challenges. Even though a HELOC can be discharged during a Chapter 7 bankruptcy, its worth the effort to keep your home equity and have something to build from as you emerge from the bankruptcy process. Handling a HELOC and bankruptcy can be challenging, but with proper communication and a plan, its possible to navigate the process and emerge more financially healthy than you were before.

    What Happens When You File Bankruptcy In Seattle Washington

    What Is Chapter 7 Bankruptcy?

    by Richard Symmes | Sep 27, 2020 | Bankruptcy, Blog, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Foreclosure Defense

    One of the most common questions consumers filing bankruptcy want to know is, what happens when you file bankruptcy in Seattle, Washington, and what can I expect after I file for bankruptcy. The bankruptcy process can last for a minimum of 90 days in a chapter 7 bankruptcy or go as long as 5 years in a chapter 13 bankruptcy repayment plan. These are the two most common types of bankruptcy for consumers, with chapter 11 bankruptcy being an option for businesses looking to restructure or those individuals who may not qualify for chapter 7 bankruptcy or chapter 13 bankruptcy due to income or being over the debt limit in chapter 13.

    Also Check: Can You Rent An Apartment After Filing For Bankruptcy

    Business Bankruptcy: Chapter 7 Vs Chapter 11

    Businesses can file either Chapter 7 or Chapter 11 bankruptcy. Businesses who file Chapter 7 bankruptcy are in the process of shutting down. All of the business assets – from real estate to personal property – are sold and unsecured creditors are paid in order of priority. Businesses donât get to claim exemptions – everything goes.

    A bankruptcy proceeding under Chapter 11, on the other hand, can be used to restructure the business and its financial obligations. The bankruptcy protections granted by the automatic stay give the business an opportunity to propose a payment plan. As of February 20, 2020, small businesses are able to file a less complicated version of Chapter 11 called Subchapter V.

    Doesnt Filing For Bankruptcy Ruin My Reputation And My Life

    Not if it gets you out of debt. You might be able to run from creditors for a while, but eventually the stress of that overwhelms people. Bankruptcy lets you stop running and start over again. It may take a few years for you to get loans and obtain credit again, but at least youll have that opportunity. Bankruptcy is meant to give people who made financial mistakes a second chance. In todays turbulent economy, that is a good thing.

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    Alternatives To Filing Chapter 7 Bankruptcy

    If you are wondering if you should file for bankruptcy, there are many nonprofit consumer credit counseling organizations that have the ability to negotiate more favorable terms with creditors. Its particularly effective with credit-card companies. The repayment program will be managed expertly and fees could be avoided.

    Here are some options:

    Debt Management Plan Entering into a debt management program can provide relief from interest rates, late fees and penalties from creditors. Under a DMP, which is negotiated by credit counselors, you promise to pay back the full principal over time in an efficiently managed manner.

    The debt management program provides an organized monthly payment plan. It provides an opportunity to handle the debt more efficiently than trying to sort it out yourself. By keeping the payments on track, it will be good for your credit score.

    Some caveats: There is generally an enrollment and maintenance fee and the DMP is never a guaranteed option. Creditors have no obligation to participate.

    Debt Consolidation This option reduces interest rates and combines all of your debts into one manageable monthly payment. Under debt consolidation, you take out a loan, which is used to consolidate and pay off all of your other debts.

    Personal Loan for Bad Credit Yes, you can get a personal loan with bad credit, depending on your situation. You can expect high interest rates and should only consider this option if you can truly afford the monthly payment.

    What Type Of Bankruptcy Is Right For Me

    Chapter 7 Bankruptcy Explained | Step by Step

    Many individuals who are considering filing for bankruptcy have done basic research to understand whether bankruptcy is right for them. Unfortunately, with so much legal terminology, its easy for individuals to get confused about the type of bankruptcy they need. We will get you immediate answers to your most pressing bankruptcy questions.

    At Yesner Law, our Tampa bankruptcy lawyers represent individuals throughout central Florida in Chapter 7 and Chapter 13 bankruptcy, the two most common types of consumer bankruptcy. If you are struggling to keep up with your monthly debt payments, it may be time to consider seeking bankruptcy protection. To learn more about your legal rights and legal options, please contact our top-rated Florida bankruptcy attorney for a free, no obligation consultation.

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    Get Relief From Your Debts Through Bankruptcy

    There are two “chapters” in the bankruptcy code that provide relief to consumers like you and I, Chapter 7 and Chapter 13.

    Chapter 7 bankruptcy is the quickest and most common type of bankruptcy. It can effectively assist you in freeing yourself from most unsecured debt, such as credit card debt, medical debt, or personal loans. It can also help you get out from under bad secured loans, such as car loans with high payments that are worth more than the car itself.

    Preparing to file is a simple process of gathering information about your current financial situation, such as your income, the things you own, the debts you owe, and some of your past financial activity.

    How To Find The Right Bankruptcy Attorney

    Like every other service, Americans want the most for their money. General questions to ask an attorney include whether they charge a flat fee, is everything included in that fee, are there any additional charges outside of a flat fee, and sometimes the most important question is whether they will be given advice by the attorney themselves or turned over to a paralegal or secretary.

    Other pertinent questions that should guide the selection of an attorney beyond the fees include whether the attorney will be at all legal meetings, is available anytime for an appointment at no additional fees for advisement, and is the attorney primarily a bankruptcy lawyer or do they do other cases also?

    Finding a good attorney to trust can make a huge difference in how the process of a bankruptcy in Florida is conducted.

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