How Does Bankruptcy Work?

how does bankruptcy work chapter 7 vs 13

America is a country in which the poorest of people are supposed to be able to pull themselves up by their bootstraps. Unfortunately, bootstraps aren’t made as well as they used to be. Workers are dispensable, inflation continues, real estate is ever more expensive, and job stability is ever shakier. Bankruptcy is going to be inevitable for a certain percentage of Americans. 

The Coronavirus pandemic has caused financial ruin for many people. Quite a few bankruptcies are likely to be filed this year on top of the ones already filed last year. According to Macco Law Group, LLP, it is helpful to learn about the process of bankruptcy in the unfortunate event that you are unable to pay the bills. 

When Should You File For Bankruptcy 

If you are drowning in bills and have no reason to believe you will be able to pay them in a reasonable amount of time, you will want to file for bankruptcy. There are two different types of personal bankruptcy, Chapter 7 or Chapter 13. 

When you file a Chapter 7, you will still owe all the same bills, but your creditors will not be able to pursue you for them in any way. They will not be able to call you or write to you and ask you for the money, and they will not be able to sue you. 

If you file a Chapter 13, you will make a payment plan with many of your creditors. They cannot contact you or sue you while you are under Chapter 13. 

Chapter 7 

Most people who file for bankruptcy in the United States will file for a Chapter 7

When a person files for Chapter 7 bankruptcy, they must document all of their assets. Some of these assets will be exempt such as basic things a person needs to live a comfortable life like clothing and furniture. 

If you have any non-exempt assets such as an extra home or a valuable car, the bankruptcy trustee may liquidate those assets and pay some of your creditors with the proceeds. 

There are a few things such as the home you live in that will not fall into either category. Although a creditor may not be able to take your home when you are bankrupt, they may be able to keep an existing lien on the property until you have paid them. 

When you file for bankruptcy in the Empire State, you must have an income that is less than the median income in your community or you must pass a means test. The means test is designed to establish that you truly cannot pay your bills. If you do not pass the means test, you may want to consider filing a Chapter 13. 

Chapter 13 

Chapter 13 is designed for individuals and married couples who have a good income but are struggling financially. When you file this kind of bankruptcy, you will make a repayment plan. You do have to pay your debts back, but you can pay them back at a much slower pace than you normally would. In some cases, you may have as long as five years to pay off your debts. 

Once you decide on the kind of bankruptcy you will file, you will want to contact an attorney to handle the filing for you. You will be given time to gather your bills and your tax returns. Your attorney will file the paperwork, and you will then have a meeting of creditors where your bankruptcy will be discharged. 

No one ever wants to go bankrupt, but if it happens, you should go in armed with a basic idea of how the process works and a trained lawyer. Then you will need to work to build back better after becoming bankrupt.

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