Under the United States bankruptcy laws there are three major types that can be filed: Chapter 7, Chapter 11, and Chapter 13. Individuals may file for bankruptcy protection under Chapter 7 and Chapter 13. Chapter 11 is for bankruptcy protection for business entities. Here we will review both Chapter 7 and Chapter 13 so you can be familiar with the process for each and what to expect.
Chapter 7
In order for an individual to be eligible for Chapter 7 bankruptcy he must pass a means test. If the individual passes the means test, then a trustee is entrusted to sell that individual’s properties and the proceeds from the sales are paid to his creditors. This trustee will be able to sell the properties that are not exempt under bankruptcy protection laws.
There is the possibility that an individual can keep some properties as long as the assets are legally exempt from this type of liquidation. With this type of bankruptcy filing, the individual will be able to eliminate all of his debts and at the same time receive protection against credit collection harassment.
If the individual is eligible for Chapter 7, then he must file a petition with the courts for bankruptcy. Also, he will have to provide information on all of his assets and debts, creditor information, and overall financial information. The individual must also include his most recent tax return. If the primary cause of bankruptcy is credit card debt, then he’ll have to take a credit counseling course and provide a repayment plan for potential payment of all outstanding debt.
When the bankruptcy is underway, the applicant will be asked for information on all of the creditors, the amount and reason for the amount owed, income sources, a listing of all property owned, and detailed listing of all living expenses. This information will allow the trustee to determine the individual’s current living situation. The individual’s exempt properties are also examined.
The trustee will meet with the creditors approximately 30 to 60 days after the individual has filed for bankruptcy. The creditors and the trustee may inquire on his assets, obligations, and financial situation. Within a couple weeks it will be determined whether the bankruptcy filing qualifies for Chapter 7 bankruptcy filing, and whether the debt can be discharged. If the individual qualifies, then the trustee liquidates the nonexempt assets and pays the proceeds to the creditors. The individual will then be freed of his or her debts and the case is closed.
Chapter 13
If you are unable to pass the Chapter 7 means test, then you may still be eligible to file under Chapter 13. This type of bankruptcy requires the repayment of debt instead of having assets and properties sold. This repayment or reorganization of an individual’s bills can be repaid within three to as five years. If there is any remaining debt after the repayment plan terminates, then the debt is eliminated.
Bankruptcy Protection
Both Chapter 13 and Chapter 7 offer an individual an opportunity to start fresh and remove the pressure of a difficult financial situation. It gives an individual the opportunity to either eliminate their debts or repay the creditors under a payment plan and at the same time the individual is protected from creditor harassment.