Struggling to pay credit card debts, your mortgage, business expenses, car payments, and basic necessities can leave you overwhelmed and feeling buried by debt. If you are floundering under oppressive debt, the powerful tool of bankruptcy may offer you a way out of debt and into a bright financial future.
Types of Bankruptcy
There are several different types or Chapters of bankruptcy, all set out in the Bankruptcy Code. Chapter 7 bankruptcy is the most common and millions of individuals will file for bankruptcy under this chapter each year. Chapter 7 bankruptcies comprise approximately 3/4 of all bankruptcies. About 1/4 of bankruptcy filings fall under Chapter 13. Chapter 13 is known as the reorganization chapter because it allows you to make partial or total repayment to your creditors. Businesses reorganize their debts in the related Chapter 11. Finally, in rare instances, farmers can file for Chapter 12 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows individuals and some businesses a means of eliminating most or all of their unsecured debt. Unsecured debts can include anything from credit card debts, medical bills, loans, and the like. Chapter 7, unlike Chapter 13, does not require any sort of repayment plan.
Chapter 7, often referred to as the liquidation chapter, will involve the trustee’s sale of your non-exempt assets to pay off creditors. Many assets, however, are protected by Florida state exemptions. Some recognized exemptions include:
- Your home
- $1,000 personal property
- 401(k) plan
- Disability income
- Health savings account
- Retirement benefits
- Unemployment benefits
- Worker’s compensation
In order to qualify for Chapter 7 bankruptcy, you must meet the stringent “Means Test.” Rather than assessing your debt and insolvency, the means test looks to your income to determine if it is low enough for you to qualify for Chapter 7. If your income is less than the median income in Florida for a household of your size, you will generally qualify for Chapter 7 bankruptcy. If your income is above the threshold, you may still be able to qualify if you can provide additional information as to your expenses and secured debt obligations sufficient to satisfy the court.
Chapter 7 can offer a vital tool to freeing you from debt. Anyone considering Chapter 7 should start by meeting with an experienced bankruptcy attorney who can evaluate their debts, assets, and desired goals. Your attorney can assist you in determining what property you could lose in a Chapter 7 action and whether options other than bankruptcy could achieve the same goal of debt relief. If you elect to file for Chapter 7, your attorney will conduct the important task of filing the petition along with your financial records.
Chapter 13 Bankruptcy
Chapter 13 offers an alternative means for individuals and sole proprietorships to obtain relief from oppressive debt. Chapter 13 is commonly referred to as the reorganization or restructuring chapter because it allows debtors to essentially restructure their debts into manageable repayment plans with better terms, such as lower interest rates. Individuals will generally be required to repay some or all of their debts, unlike in Chapter 7, but in exchange, you will not usually lose any of your possessions or assets in the process.
It is easier to qualify for Chapter 13 than Chapter 7. Under Chapter 13, debtors must have a steady income that will allow them to enter into a long term repayment plan. There are limits to the amount of secured and unsecured debt you can have and still be able to file for Chapter 13. An experienced bankruptcy attorney will evaluate your finances to determine whether you qualify.
Upon filing for Chapter 13, you and your attorney will propose a repayment plan that allows you to repay all or some of the debt over the next three to five years. The written draft of the plan must be approved by the court. Chapter 13 requires devotion to complete repayment, but if you successfully meet the plan, your debt will be discharged and your fresh financial future can begin.
Individuals are often confused as to whether Chapter 7 or Chapter 13 is right for them. The answer is highly individualized and requires an examination of the debtor’s income, assets, debts, and ideal outcome. For those who are ineligible for Chapter 7 or want to save their non-exempt assets, Chapter 13 can provide an ideal tool. For the majority of individuals drowning in debt, Chapter 7 allows erasure of the largest amount of debt and can be brought to completion far faster. The choice is yours alone to make, but it is certainly one that requires the input and assessment of a skilled bankruptcy attorney.
Chapter 11 Bankruptcy
Chapter 11 is often referred to as the business reorganization chapter. This is a complex area of bankruptcy law, reserved typically for corporations with looming financial catastrophe. However, individuals with very large debts are able to file for Chapter 11 as well. Like in Chapter 13, you will propose a repayment plan under Chapter 11. Here, the creditors along with the court have an opportunity to vote on your plan. The entire bankruptcy process is lengthy and costly. It is not easy for a failing business to complete a Chapter 11 plan, but those businesses that have a profitable core and are merely in need or reorganization can come through the bankruptcy on top.
Regaining Your Financial Freedom
Individuals and businesses struggling with oppressive debt can find a means of achieving a bright financial future through bankruptcy. This vital tool allows qualifying individuals or businesses to erase some or all of their debt so that they can hit the financial restart button. Deciding to pursue a bankruptcy case is an important decision that will have consequences on your life and finances, so be sure to consult with a knowledgeable bankruptcy attorney as soon as possible.
To schedule a free consultation with one of our experienced Gainesville Bankruptcy Attorneys, call our law office today.