Answers to Some Commonly Asked Bankruptcy Questions
Bankruptcy may mean the disgrace or loss of the dignity of a once prominent and wealthy person/group. Yet, bankruptcy has a deeper meaning more than its social connotation. Answering some commonly asked bankruptcy questions shall shed light to what bankruptcy really is for those involved.
Bankruptcy Questions – & Answers:
What exactly is bankruptcy?
Bankruptcy is federal processes intending to help a person/organization (consumers/businesses) eliminate their debts or repay them under the protection of the bankruptcy court. Thus, it gives people who are unable to pay their bills, the right to have a clean start financially.
Among common bankruptcy questions necessary to ask is the kind or the appropriateness of the bankruptcy.
Are there different ways of filing a bankruptcy? What are their differences? Which type should I use?
Yes. Bankruptcies can be categorized as ‘liquidation’ (Chapter7) or ‘reorganization’ (Chapter13). Under liquidation bankruptcy, the bankruptcy court will discharge or wipe out most of the debts you owe upon request. In exchange for this though, the bankruptcy trustee can take any property you own that is not exempt from collection, sell it, and distribute the proceeds equitably to your creditors. Under reorganization (for consumers), you file a repayment plan with the bankruptcy court proposing how you will repay your creditors over time (saving you from other lawsuits). With the assistance and protection of the law, you must repay some of your debts in full (others may be repaid only partially or not at all) depending on what you can afford -on your income, extent of properties, and the amount and types of debt you owe.
Most people who meet the eligibility requirements choose Chapter7, because, unlike Chapter13, it doesn’t require them to pay back any portion of their debts. However, Chapter13 might be a better choice, depending on the situation, especially if you are behind your mortgage and want to keep your house, you can include those arrearages in your Chapter13 plan and repay them over time.
Another common bankruptcy questions are those about the freedom of choice of the bankrupt.
The most crucial of the bankruptcy questions: Am I ‘free’ to choose between Chapter7 and Chapter13?
Yes if you meet the eligibility requirements or condition for both. However, you may not have a choice. If you have secured debts exceeding $923,000 and unsecured debts of more than $307,700, then you cannot use Chapter13. Also, those whose incomes are higher than the median family income may not be allowed to use Chapter 7 if their disposable income, would allow them to pay back some portion of the unsecured debt over five-years. Again, you may not have a choice – you’re in debt.