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Your Bankruptcy Options, Explained

Filing for bankruptcy refers to a legal procedure that can reduce, reorganize, or remove your debts completely. The first step in the filing process is to go to court. While you can do it alone, it is advisable to hire a bankruptcy attorney. There will be bankruptcy costs, too, including the filing fees and lawyer fees if you hire one. If you don't get an attorney, you will be expected to pay the filing fees.

Why should you declare bankruptcy?

The main reason why people do this is to begin afresh financially and psychologically. The next reason for filing is that it can stop creditors and debt collectors from bothering you. The court will stop their threats and further attempts to force you to pay your debt. Creditors are not only prohibited from taking you to court but also from entering liens against your assets. So, after filing for bankruptcy, you can't go through wage garnishments, eviction from your home, or utility disconnection.  While this legal process might take six months or longer to be over; it's less stressful than dealing with debt collection agencies.

What kinds of bankruptcy exist?

Although there are different kinds of bankruptcy that married people and singles can opt for, the most prevalent are two: Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

This type of bankruptcy gives you an opportunity to get a court judgment that discharges you from repaying your debts. The court lets you keep exempt property while non-exempt property is sold to repay a portion of your debt. Exempt properties include your business vehicle, house, machinery used for work, pensions, welfare, retirement benefits, and Social Security benefits. Non-exempt properties are items like your stock investments, bank accounts, stamp collections, coin collections, a second home or vehicle, and cash, among others.  

The law regarding exemptions varies from state to state, and it is upon you to find out if you are required to follow the federal or state law.  Once non-exempt items are sold, the proceeds will be disbursed to each creditor and the task will be done by a bankruptcy trustee. Some of the profits will be used to pay the trustee's fees and administrative fees. Chapter 7 is the most preferred option, and your bankruptcy attorney can help you qualify for it.

Chapter 13 Bankruptcy

If you want to try a non-business bankruptcy filing, a Chapter 13 bankruptcy attorney will be needed. This is a quite common type of bankruptcy, although not at the same level as Chapter 7. It entails a repayment plan that is designed to last three to five years. If you want to retain your property, then select Chapter 13. As long as you could qualify, the code will keep your assets from being sold. To qualify, your debts should not exceed a preset amount.

This cutoff is re-assessed periodically, so you need to ask your bankruptcy attorney to show you the current figures. If all debts included in the repayment plan are paid within the stipulated period, the rest are deleted. On the other hand, if you fail to complete your plan, you should try to file for Chapter 7 bankruptcy. Otherwise, your creditors will start to disturb you again.


Apart from Chapter 7 and Chapter 13 bankruptcies, your lawyer can tell you more about other chapters. These include Chapter 9, 11, 12, and 15. Any of these might be considered if you don't qualify for Chapter 7 or 13.