Bankruptcy Basics

If you are an individual facing bankruptcy then you need to know that Chapter 7 for liquidation and Chapter 13 for reorganization are the two types of proceedings that apply to you. You will need Chapter 7 if you have assets than can be liquidated. No two people are the same bankruptcy will not work for some people but maybe the best way round a situation for others.

Chapter 7 Bankruptcy Proceedings
Chapter 7 is the most common proceeding for individuals and this proceeding determines how much property you can keep and what should be liquidated. In order to claim under Chapter 7 you can’t have a lot of money sitting in your bank account as you’ll be required to pay this to your creditors. What property and how much of it you can keep will vary, depending on the asset laws of the state that you live in, as well as your circumstances. In many states you would retain assets such as your family home but you need to enquire into how the ruling works in your particular state. Some debts cannot be discharged no matter what state you live in, these include income tax, child support and outstanding student loans.

You can’t file for Chapter 7 bankruptcy until you have completed an online government run credit counselling course, which takes up to an hour to complete. Once you have actually filed, you have to take another online government course. Once you have filed for bankruptcy, stop is put on any proceedings there may be against you. Around four to six weeks later you will have to attend a meeting with an assigned trustee and your creditors. You don’t need to go to court for this short, ten minute meeting and creditors rarely attend this.

Providing there are no particular problems or objections to your filing then after 60 days the authorities will put in an Order of Discharge. The bankruptcy will stay on your credit report for ten years and you won’t be able to obtain credit during that time. After two years, however, you may be able to apply for an FHA mortgage.

Chapter 13 Proceedings
Chapter 13 is quite different from Chapter 7 and you have to provide a proposal for repayment of some of your debts. The repayment schedule and amount will be set by the court. The payments would go to an appointed trustee and this will last for about five years. Unlike Chapter 7 you need money coming in to make the repayments and there are limits on the debt $365,475 of unsecured debts and $1,081,400 secured debt. Reasons for filing under Chapter 13 include earning too much, falling behind on mortgage and car repayments and unpaid taxes.

You repay your debts in order of their importance so car, mortgage and tax repayments will come before any unsecured debts, for example, credit card debt. How much you have to repay will be determined by your specific circumstances and this ruling will stay on your credit report for seven years.