What is Bankruptcy?

Many people find themselves in financial hardships at some time
in their lives. It may be due to high consumer debt, no income
from unemployment or health issues, high medical bills, or bad
investments. Sometimes, bankruptcy is the only solution to
getting out of debt and there is more than one type of bankruptcy
available depending on the situation. This article will provide
a brief overview of what bankruptcy is and who can file what
types.

If you’re looking for help with this overwhelming time in your life, try contacting a bankruptcy attorney in Harrisburg. A bankruptcy attorney can guide you through the process and provide you with peace of mind until the filings are completed and executed. You can get your life back on track.

Depending on your income and ability to pay, bankruptcy will either
take the form of unsecured debt liquidation (Chapter 7) or
repayment at a rate the individual or business can afford.
The latter is known as debt adjustment and is called Chapter 13
bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy provides a person or business with no means
of repayment, the opportunity to completely liquidate unsecured
debt such as credit cards and medical bills. Certain types of
liens can be stopped, as well as harassment from creditors and
debt collectors. This process can take from 3 to 6 months.
Chapter 7 bankruptcy does not provide for repayment of secured
debt, most tax debt, student loans, child or spouse support. Some
property may have to be liquidated to pay down the debt, but
items such as clothing, furniture, and a car are exempt. A
Chapter 7 bankruptcy will stay on your credit record for 10 years.

In order to file a Chapter 7 Bankruptcy, a person must earn below
a certain income threshold and pass a means test. Also, if you
have filed a bankruptcy within the last 8 years, you will be
ineligible to file again during that time frame. New legal reforms
have also included a requirement to complete credit counseling
from a government approved credit counseling agency before you
can file. The judge looks at other criteria as well, such as
defrauding creditors, violating a court order, a previously
dismissed bankruptcy case in the last 180 days.

Chapter 13 Bankruptcy

When it is determined that an individual or business is able to
make payments on their debt, a Chapter 13 bankruptcy is used.
Advantages of this type of filing are stopping a mortgage
foreclosure, keeping nonexempt property, and reducing or
“cramming down” secured debts to the replacement value of the
property that secures them. In the latter case, there are
instances when you can’t “cram down” a debt if it was incurred
within a specified time frame of filing the bankruptcy.
Chapter 13 bankruptcy stays on a credit record for 7 years.

In a Chapter 13 bankruptcy, debt is classified in 3 ways.

1. Priority debts – must be repaid in full. These
include child support, and some taxes.

2. Secured debts – must be paid to at least the value of the
property or collateral securing the debt.

3. Unsecured debts – must be paid at some value less than
what is owed depending on the debtors ability to pay.

Other types of bankruptcy

Other types of bankruptcy exist, such as Chapter 11 and
Chapter 12. These are less common and generally do not apply
to most people.

Chapter 11 is for business who are struggling financially and
need to reorganize their business. This is for debt limits
higher than Chapter 13, and is more expensive to implement.
Businesses that use Chapter 11 will generally have more
nonexempt assets.

Chapter 12 the same as Chapter 13 except it is intended for
farmers. In Chapter 12 bankruptcy, at least 80% of the debt
must be resulting from the operation of a family farm. Higher
debt limits are allowed to accommodate farm operating costs
and certain types of liens can be eliminated.

If you are looking at the possibility of filing bankruptcy,
it is advised to consult a qualified bankruptcy attorney.
With many recent changes in the law, that is the best way
to keep current with eligibility requirements as well as
discovering if bankruptcy is the right choice or another
alternative would be better.