If you’re having difficulty with your finances, you’re not alone. Many people have trouble keeping their heads above water, and money issues can cause undue stress.
Sometimes the best option for handling your debt is by filing for bankruptcy. On average, over a million Americans file for bankruptcy each year. But when it comes to bankruptcy, the terms can be confusing, and it’s best to pick which course of action is right for your situation.
What is consumer bankruptcy?
Consumer bankruptcy is a way for those overwhelmed with debt to get a fresh financial start. The two types of bankruptcy most common for individuals as specified under the U.S. Bankruptcy Code are Chapter 7 and Chapter 13.
How Chapter 7 works
Chapter 7 will eliminate most of your debts, including credit card debts, personal loans and medical bills. It is the fastest and most common type of bankruptcy for a consumer.
Some debts are not dischargeable with Chapter 7, these include alimony, municipal and criminal fines, child support and most student loans.
To qualify for Chapter 7 bankruptcy, if your monthly income is greater than your state’s median income, you must first pass a means test. This prevents abuse of the bankruptcy system and will determine exactly what type of debt relief is available. You must also attend credit counseling from an accredited nonprofit before Chapter 7 proceeds.
While the court’s goal for Chapter 7 is liquidating personal property to pay off your debts, some property you can keep. Exempt property includes:
- Cars, up to a certain value
- A certain amount of jewelry
- Some home equity
- Damages awarded in personal-injury cases
Taking the next steps
If you’re considering bankruptcy, you’re undoubtedly having a difficult time. The decisions can be overwhelming and you’re likely worried for your future. If Chapter 7 seems like the best road forward, you might consider speaking to a lawyer to get a better sense of what options exist for you.