Many people considering bankruptcy need clarifications about what their options are before filing with the courts. Depending upon your income and level of debt owed you will want to weigh whether you will qualify for a Chapter 7 Bankruptcy – sometimes called Liquidation or a Chapter 13 Bankruptcy – sometimes called an Adjustment of Debts. Let’s look at the basic differences. Once you understand the types of bankruptcy, you will be better versed to discuss your options with a bankruptcy attorney.
Chapter 7 Bankruptcy is essentially dissolving everything and starting over, hoping for a clean financial slate. Basically what happens is that once the filing is underway, an administrator or trustee is appointed to maneuver the sale of the debtor’s assets. The type of property that is generally considered exempt include the following:
- Equity in your Home – called a Homestead Exemption
- insurance – The cash value is usually exempt and will be discharged.
- Retirement Plans- 401ks 403 B and Pension Plans are usually protected from bankruptcy.
- Personal Items such as clothing and furniture will remain in your possession.
- Public Benefits such as welfare and Social Security Benefits usually remain intact.
Chapter 13 Bankruptcy is a plan to repay creditors through the help of a trustee and the bankruptcy court. Either part or all of your debt is paid back over the course of several years. How much you have to repay is usually dependent upon your income and the specific type of debt. You are really only paying back a percentage of what you actually owe.
Filing for bankruptcy is a serious financial step that will affect your credit rating for many years. The decision to file is best made under the counsel of a financial planner and/or a legal representative.