Between Oct. 1, 2005, and Sept. 30, 2017, the U.S. Courts states that approximately 12.8 million people filed consumer bankruptcy, and you may have considered doing the same in the midst of financial difficulty. Either because of insufficient income or another cause, filing bankruptcy can provide a fresh financial start if you can no longer pay your debts.
There are two types of consumer bankruptcy: Chapter 7 and Chapter 13. Each follows different processes and has different requirements, but both can provide financial relief if you are struggling with excessive debt.
Chapter 7 bankruptcy
Also referred to as a type of liquidation bankruptcy, Chapter 7 can eliminate the majority of your unsecured debts, including medical debt and credit card debt. You do not need to follow a repayment plan when you file for this type of bankruptcy, but you must meet certain income requirements to qualify.
Once you file for Chapter 7 bankruptcy, an automatic stay will move into place that prevents creditors from collecting funds from you. A bankruptcy trustee will also administer your case at this point, selling any nonexempt property to provide repayment to your creditors. Common nonexempt assets can include expensive artwork, investments, property that is not your primary home and valuable musical instruments not used for business.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is for debtors who still have a consistent income and can pay a portion of their debts back to creditors. Unlike Chapter 7 bankruptcy, you can keep all your property. However, you must pay back some of your debts through a repayment plan. The amount you will need to pay back to your creditors depends on the type of debt accrued, your expenses and your income.
Most repayment plans last between three and five years. Once you finish making all the payments required by the repayment plan, the remainder of your debts will undergo the discharge process.