Bankruptcy is a process by which an honest debtor who has accumulated debt far beyond their means to repay can resolve their debt and get a fresh start.
The decision to file bankruptcy is never an easy one, but it is one that millions of Americans from all walks of life have been forced to make.
Individuals most often file bankruptcy under one of two chapters in the bankruptcy code – Chapter 7, commonly referred to as a liquidation bankruptcy, or Chapter 13, in which debts are consolidated under a court-approved repayment plan.
Chapter 7 bankruptcy is commonly used when the debtor has exhausted all financial resources and would have no means to make payments under a Chapter 13 repayment plan currently or in the foreseeable future.
For instance, an individual who is disabled or retired, or who has no or very little income or assets, would most likely benefit from Chapter 7.
The major downside of this form of bankruptcy is that it involves a liquidation of most of the debtor’s assets, the proceeds of which will be distributed to the creditors to repay their debts.
At the end of the process, the debtor’s debts will be discharged by the court, and the debtor will be forever cleared of any responsibility to pay those debts.
Certain person items, such as jewelry, clothing, and items required for their occupation (referred to by the bankruptcy code as ‘tools of the trade’) are exempt from liquidation.
Secured debt, which is debt which is guaranteed by a physical object such as a car or a mortgaged home, are not including in the liquidation. This means those debts would not be discharged and the debtor is expected to make those payments or risk defaulting on those debts even if they are granted relief under Chapter 7.
Despite popular misconception, student loan debt can also be discharged under Chapter 7. However, to do this you will have meet the requirements of an ‘extreme hardship’ test, proving that attempting to pay the loans would negate your ability to provide for basic comforts such as food and shelter for yourself or you dependents.
The decision to file for any form of bankruptcy is a serious decision with far-reaching impact on your financial future and your ability to acquire credit in the future.
For this reason, no decision concerning bankruptcy should be made without first consulting an experienced bankruptcy attorney.
Contact us if you are considering bankruptcy. Our experienced legal team can help you make the right decision.