What exactly is Bankruptcy?
Bankruptcy can offer a fresh start. A way to get out of crushing debt or recover from a difficult life situation including:
- Severe illness resulting in mountains of medical bills
- An expensive and/or drawn out divorce
- The loss of their job or other primary source of income
- A fire, flood or other disaster that destroys their property
Regardless of the reasons behind a person seeking to file bankruptcy, the process itself is the same. There are two different types of personal bankruptcy, Chapter 7 and Chapter 13.
Chapter 7 “Straight” Bankruptcy
Chapter 7 bankruptcy allows a person to completely eliminate their debts, but the person filing usually must be earning less than the median income of a household of equal size of within New York state. Alternatively, a person making more than the median income of a household of equal size can attempt to qualify for chapter 7 bankruptcy by filling out a relatively complicated form that calculates how much money would be left if the filer were to make payments on all of their debts for the next few years. This combination of benefits and qualifications make Chapter 7 bankruptcies a powerful tool for people who have lost their jobs and no longer have the income to repay their debts.
Chapter 13 “Restructured Debt” Bankruptcy
Chapter 13 bankruptcy is geared more towards people who still have a primary source of income that would normally allow them to pay the bills of an average household their size, but who have gotten into such a bad financial situation that even their income is not enough to pay their bills.
Rather than wiping out the debt completely, the bankruptcy court will restructure the filer’s debt so that it becomes manageable. The process usually involves a reduction of the total amount of money owed along with a reduction in the monthly payments required to stay current on the debt. If the bankruptcy court believes that the filer’s income is enough to allow them to make payments on some of their debts while maintaining a reasonable standard of living, it may make the filers go with a Chapter 13 bankruptcy rather than a Chapter 7.
How Bankruptcy Affects Your Property
People are often concerned that in order to file for bankruptcy that they must give up nearly all their possessions and eliminate any and all luxury expenses from their monthly spending. While it’s true that some assets can be subject to the terms of a bankruptcy, often those assets needed for filers to keep their job, shelter their family, or provide their household with other basic needs are exempt from being taken by creditors. See our discussion of which assets are protected by bankruptcy (hyperlink to property blog) to learn more.
Learning More About Bankruptcy
If you’d like to learn more details about what bankruptcy involves you can also visit the United States Federal Courts website to look at some of the rules and/or forms that are involved. Bankruptcy is not for everyone with debt, but for some people who find themselves owing debts that they stand no real chance of ever being able to pay off, it can offer relief and a chance to start over.
Regardless of which type of bankruptcy you are considering, finding an experienced bankruptcy attorney in your area to learn more about what the bankruptcy process involves is always a good idea and we are happy to answer your questions, so feel free to give us a call!