When an individual files for bankruptcy, it is referred to as ‘personal bankruptcy.’ Filing for bankruptcy becomes a good option when you have debts that you cannot pay off on time and when you become overwhelmed by creditors’ collection efforts. Individuals typically file either Chapter 7 or Chapter 13 bankruptcy petitions.
What Does it Mean to File for Personal Bankruptcy?
All bankruptcy cases must be filed in Federal Court; state courts do not have the ability to hear bankruptcy cases. There are special Bankruptcy Courts and bankruptcy laws in place that apply to bankruptcy petitioners. If you file for bankruptcy, those courts will determine which debts you must pay and will plan a realistic way for you to pay them. Personal bankruptcy is meant to ultimately give individuals ways to become free of debt. Chapter 7 and Chapter 13 bankruptcies provide different pathways toward resolving unmanageable debt. An experienced bankruptcy attorney can help you determine which type of bankruptcy is right for you.
What is Chapter 7 Bankruptcy?
Filing for personal bankruptcy under Chapter 7 means filing for “liquidation”. In these cases, the bankruptcy court appoints a “trustee”. In theory, the trustee could liquidate your assets, or reduces them to cash, and use them to pay creditors back for what you owe. However, many types of real and personal property are exempt from liquidation; that is, a trustee cannot take or use most assets to pay creditors. In fact, in the majority of cases, a debtor does not have any assets that can be liquidated. Even in these so-called “no-asset cases,” you can be relieved of your obligations to pay certain types of debts. You might not be able to file for personal bankruptcy under Chapter 7, however, if your income is too high.
What is Chapter 13 Bankruptcy?
Filing for personal bankruptcy under Chapter 13 means filing for an “adjustment of debts”. If your income is too high to file for personal bankruptcy under Chapter 7, then you can file under Chapter 13. Chapter 13 is meant for people with jobs and steady income. It is often better to file for personal bankruptcy under Chapter 13 than it is to file under Chapter 7 because your income may be too high, or you may be able to better protect certain assets. Filing under Chapter 13 also gives you the chance to come up with and suggest a plan to pay off your debts over a period of time. If you file for personal bankruptcy under Chapter 13, you will not be relieved of your debts until you finish making payments under a court-approved repayment plan.
How Should I Start the Process of Filing for Personal Bankruptcy?
The first step in filing for personal bankruptcy is for you to speak with an attorney and understand your situation from a legal point of view. At that point, you’ll be better equipped to decide with that attorney’s counsel, the type of bankruptcy that is best for your personal situation. After that, you will have to file your case with a Federal Bankruptcy Court. Deciding which Chapter to file under and filing your case are important and can be difficult, which is why you should contact an experienced personal bankruptcy attorney, like the ones at Dworken and Bernstein, to start the process.