What are the different types of bankruptcy that apply to individuals? There are two, Chapter 7 and Chapter 13. You may have heard of Chapter 11 but that is for businesses not individuals.
Effective October 2005, Congress made sweeping changes to the bankruptcy laws that gave consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process.
Basically in Chapter 13, the court can approve a payment plan that can run up to five years. This process lets you pay off today’s debts with future earnings. Obviously you have to have a steady source of income to qualify for this filing.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Other property could be sold by a court appointed trustee or given directly to a creditor as payment of your debt. There is also a limitation of how much you can earn during this process. It is not designed for you to profit by not having to pay your debts.
Another difference between the two is the amount of time that must pass before you can refile. With Chapter 7 the waiting period is 8 years. With 13 it is two years.
Both types of bankruptcy can get rid of unsecured debts and stop foreclosures, repossessions, garnishments and debt collection activities. Both can provide exemptions that allow people to keep certain assets, although exemption amounts will vary by state. Obligations that cannot be satisfied by either form of bankruptcy include child support, alimony, fines, certain taxes and student loan obligations both government and privately funded.
Unless you have an acceptable plan to satisfy your debt under Chapter 13, the court usually will not allow you to keep property when the creditor has security lien on it. This could include your home as well as well as boats, vacation homes, recreational vehicles etc.
As part of the new law, persons seeking to file under either chapter have to have attended a government approved credit counseling course within six months of filing. The idea here is to try and solve the credit problem without taking legal action. The second major change just involves Chapter 7. Today you have to satisfy a “means test” to confirm your income does not exceed a certain amount. This amount will vary by state. You can find those limits here.
Bankruptcy is an emotional time but a necessary step for those who absolutely need the relief.
For more information please visit: http://www.floridalawattorney.com