Filing for bankruptcy is a major life decision, and one that doesn't come easy. The burden of financial stress can be overbearing and a lot to overcome. You've heard there are certain benefits to bankruptcy, but fear the negative impact it could have on your financial future.
Like most people considering bankruptcy, you probably have a lot of questions about how it will improve your financial situation, what the drawbacks are, and the difference between Chapter 7 and Chapter 13. Continue reading for answers to some of the most frequently asked bankruptcy questions.
What is bankruptcy?
Bankruptcy is a general term used to describe a federal court procedure that helps consumers and business owners who are unable to repay outstanding debts.
Are all debts forgiven with bankruptcy?
Depending on which form of bankruptcy you file for and the type of debt you have, it's possible the court will rid you of certain debts and require negotiation for repayment on others.
With that said, there are certain debts that cannot be discharged with bankruptcy, no matter which form you choose. Some of these debts include:
- Child support
- Court-ordered fines, penalties or restitutions
- Overdue taxes
What's the main difference between Chapter 7 and Chapter 13 bankruptcy?
Bankruptcy is typically divided into two categories: "liquidations" and "reorganizations." Liquidation of property occurs during Chapter 7 bankruptcy; some or all of your property may be seized and sold to pay off existing debts. On the upside, if you qualify for Chapter 7, all unsecured debts will be wiped clean. Unsecured debts can include credit cards, student loans, utility bills, medical bills and certain other debts.
Chapter 13 bankruptcy falls under the reorganization category; this type of bankruptcy typically allows you to keep ownership of property and reorganizes your debt into a payment schedule that meets your specified needs. The court will determine the amount you need to pay based on your income, how much you owe and how much the creditors would've received if you had chosen to file for Chapter 7 instead of Chapter 13.
What are the eligibility requirements for Chapter 13?
Chapter 13 is also known as the "wage earner" bankruptcy. To qualify, you must have a reliable source of income and meet the specific debt limit requirements. If you have more than $1,010,650 in secured debts or $336,900 in unsecured debts, you may not be eligible to file for Chapter 13.
What are the eligibility requirements for Chapter 7?
To meet the eligibility requirements for Chapter 7, you must show the court that you cannot make enough money to fulfill a Chapter 13 repayment plan. See the United States Courts website for more information on Chapter 7 requirements.
How will bankruptcy affect your credit?
The one thing most people know about bankruptcy is that it can have a negative, long-lasting impact on your credit. It's true, bankruptcy does stay on your record for years, but it also provides you the chance to start over. If you're considering bankruptcy, it's likely that your credit has already taken a significant hit. It will be much easier to explain bankruptcy to future lenders than mounting debts, defaults, lawsuits and repossessions.