What Does it Mean to File Bankruptcy?
Posted on April 14th, 2023 to Barbaruolo Blog
Are you considering filing for bankruptcy and looking for guidance? This blog will help you understand the basics of bankruptcy, the differences between Chapter 7 and Chapter 13, and the benefits of each to help you make an informed decision.
Filing for Bankruptcy and the Automatic Stay
Filing for bankruptcy involves submitting a petition to the United States Bankruptcy Court that lists your assets, debts, income, and expenses. Upon filing, you receive protection from creditors through the automatic stay, which stops most collection efforts, such as calls, letters, garnishments, repossessions, foreclosures, and lawsuits.
See also: Should you file for bankruptcy?
What is Bankruptcy?
Bankruptcy is a federal law designed to provide relief from debt. For consumers, there are two main types: Chapter 7 and Chapter 13. The decision to file for bankruptcy should be made with the guidance of an experienced attorney.
Chapter 7 Bankruptcy
Liquidation Chapter 7, often called liquidation or straight bankruptcy, requires no payments to creditors. Eligibility for Chapter 7 depends on a mathematical means test formula. A trustee is appointed to review your case and determine if there are any non-exempt assets to sell for creditor repayment. Most Chapter 7 filings are “no asset” cases, as the assets are protected or too minor to administer.
Chapter 13 Bankruptcy
Reorganization Chapter 13 involves making payments to a trustee for distribution to creditors over 3-5 years. You can keep non-exempt assets if you pay their value into your plan. Chapter 13 offers benefits such as stripping certain mortgage liens, catching up on past-due debts, and discharging debts that may not be discharged in Chapter 7.
The Ultimate Goal The primary objective of filing for bankruptcy is to discharge debt. In Chapter 7, a discharge is typically granted within 4-6 months of filing. The automatic stay protects you while your case is pending. Once the court issues a discharge, a permanent injunction bans the collection of discharged debts. Certain debts may not be dischargeable in Chapter 7 but may be in Chapter 13.
Speak to an Experienced Bankruptcy Lawyer
This blog provides a basic overview of bankruptcy, but it’s crucial to consult an experienced bankruptcy lawyer to determine if it’s the right solution for your financial circumstances. A skilled attorney can guide you through the process and help you make the best decision for your future.