Bankruptcy law applies to individuals facing serious consequences from debt, such as foreclosure on a house or repossession of property by creditors. This federal statutory law is under Title 11 of the US Code and includes two main forms of bankruptcy that pertain to consumers. Known as Chapter 7 and Chapter 13, these categories have different requirements depending on income levels and the types of debt involved.
Chapter 7 Bankruptcy
Individuals with large amounts of unsecured debt may be able to file for Chapter 7 bankruptcy. These debts include credit card payments, unsecured loans and medical bills. Chapter 7 doesn’t cover student loan debts, child support payments or tax payments.
Chapter 7 bankruptcy is sometimes known as liquidation because property may be seized and sold to cover debt payments. Property may be defined as just about anything a person owns, but attorneys can help get some forms of property declared exempt from seizure. Chapter 7 proceedings are often handled with a hearing rather than actual court proceedings and may take anywhere from four to six months.
Due to restructuring of bankruptcy law in 2005, fewer people now qualify to file for Chapter 7. A “means test” is used to determine if an individual is able to afford a debt repayment plan instead. If this is the case, he or she must file for Chapter 13.
Chapter 13 Bankruptcy
Also called “wage earner” bankruptcy, Chapter 13 works to reduce debt by reorganizing payments into a plan that makes it possible to pay off the balance without losing property. In a standard case, courts work with individuals to create a plan that stretches across three to five years. The goal is to help those struggling with current payments get back on track. Debt limits may mean that some people won’t qualify for this type of bankruptcy.
The same restructuring that changed the Chapter 7 laws also affects Chapter 13. If a person’s income is higher than the median for their state, the amount they must put toward paying back their debt may be higher than in the past. Instead of being calculated based on actual expenses, debt payments are established based on what’s left over after accounting for “allowed expenses” established by the IRS.
Is it Time to File?
Filing for bankruptcy is a serious decision, but it can mean the difference between losing a home, a vehicle or other property and being able to get back on your feet and move forward with your life. The filing and attorney’s fees associated with the proceedings may be incidental when compared to the loss that declaring bankruptcy can prevent.
If you think you may need to file for bankruptcy, contact Frontier Consumer Law Group for a free case evaluation. Our attorneys can help you decide if bankruptcy is the right choice for managing your debt. If so, you can count on Frontier to handle your case in a way that protects as many of your assets as possible.