No type of bankruptcy clears all types of debt, but some clear more debt than others. Although certain bankruptcy options clear more debt, they may require you to sell your property. Others clear less debt but allow you to hold on to your home and other property. In addition, it costs money to file for bankruptcy, and the fees vary per type.
Everyone’s financial situation is different, and bankruptcy laws are complex. You may feel overwhelmed researching the multiple types of bankruptcy and trying to figure out which makes the most sense for your case. Talking to a lawyer who has guided others through the bankruptcy process can help you make the best choice in a difficult situation.
According to the U.S. Courts, the purpose of Chapter 7 bankruptcy is to clear most if not all of your debt in a relatively short time frame. The large majority of people filing Chapter 7 are able to exempt or retain all of their assets. Some people filing Chapter 7 face liquidation of certain assets, known as nonexempt assets, and those proceeds are paid to your unsecured creditors. In other words, some of your assets or property is sold to pay on your debts. The bankruptcy court appoints a trustee to administer your case and liquidate your nonexempt assets if you have any.
A lawyer can help you determine which of your assets are exempt or nonexempt. Exempt assets may include:
- Your vehicle
- Your home
- Bank accounts and other financial assets
- Reasonably necessary clothing, household goods, and furnishings
- Tools of your trade if you have one
- Your retirement or pension accounts
Nonexempt assets may include:
- Vacation homes
- A second vehicle
- Cash, stocks, bonds, and other investments
One benefit of filing for bankruptcy under Chapter 7 is that it places a stay, or stops most collection actions, against your debts and property—at least temporarily. While the stay is in place, creditors cannot garnish your wages, call you demanding payment, or sue you for payment. In addition, you do not have to create a repayment plan in a Chapter 7 case.
There is a $338 court filing fee.. Although Chapter 7 bankruptcy clears many debts, it does not clear them all. For example, it does not clear you from debts for alimony, child support, payments for personal injury or death you caused while driving while intoxicated, payments for willful and malicious injury you caused to someone else or their property, or payments for criminal restitution. Student loans are difficult to eliminate in Chapter 7 bankruptcy, but it is possible for some people to obtain student loan forgiveness.
Most of the time, businesses file for bankruptcy under Chapter 11, but individuals can file under this chapter as well. The purpose of Chapter 11 bankruptcy is to reorganize debt and restructure business operations, typically with the goal of continuing to operate the restructured business. Reorganizing debts often means negotiating a payment plan with creditors and may include settling on a lower repayment. While Chapter 11 bankruptcy does not typically clear debts, it may allow you to retain assets and to operate a business if you have one.
When you file a petition for Chapter 11 bankruptcy, your creditors must suspend attempts to collect the debt and repossess or foreclose on any property. You can use this time to negotiate with them. Once your plan is in place, a court-appointed bankruptcy administrator will monitor your case and you must pay quarterly administrative fees. Upon filing the case, you must pay the court a $1,167 case filing fee and a $571 miscellaneous administrative fee.
Like Chapter 7 bankruptcy, Chapter 11 bankruptcy does not discharge debts for alimony, child support, student loans, payments for criminal restitution, willful and malicious injury, or personal injury or death you caused while driving while intoxicated.
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Only farmers and fishermen can file for Chapter 12 bankruptcy. Under Chapter 12, farmers and fishermen who meet specific requirements in terms of income and debt can propose and carry out a debt repayment plan over three to five years. The repayment plan categorizes claims as:
- Priority claims include taxes and bankruptcy fees.
- Secured claims are those in which the creditor has a lien against property, such as a car or a home.
- Unsecured claims are those in which the creditor has no collateral securing the debt.
Typically, the plan repays priority claims in full, secured property at least to the value of the collateral but does not have to fully pay unsecured debts.
A trustee will oversee the administration of your case. To file for Chapter 12 bankruptcy, you must pay a $200 case filing fee and a $75 miscellaneous administrative fee. Chapter 12 bankruptcy does not discharge debt for:
- Alimony, child support
- Willful or malicious injury
- Personal injury or death caused by driving while intoxicated
- Filing false financial statements
Chapter 13 bankruptcy is a good choice for people with overwhelming debt who have a regular income and want to retain their property. Under Chapter 13, individuals can restructure their debt, negotiate a repayment plan over three to five years, and avoid liquidating their property, including foreclosure of their home. Once you file a petition for Chapter 13 bankruptcy, your creditors must stop trying to collect a payment, at least temporarily.
As with Chapter 12 bankruptcy, Chapter 13 requires you to repay priority claims in full and secured claims at least to the value of the collateral. You are not required to repay unsecured debt in full but must repay it to the same level that you would if you liquidated your assets under Chapter 7. To file for Chapter 13 bankruptcy, you must pay a $313 court filing fee.
Chapter 13 does not discharge debts for alimony, child support, certain taxes, student loans, personal injury or death caused by driving while intoxicated, restitution, or criminal fines that are part of the sentence for the debtor’s conviction of a crime. In addition, it does not discharge the debt for long-term obligations such as a home mortgage.
Filing for bankruptcy is a difficult decision, and missteps can be costly. Our lawyer with Farm & Morris Law, PLLC, can guide you through this complicated process with compassion. Contact our office today to learn more about whether filing for bankruptcy is the right step for you and, if so, which type of bankruptcy will clear your debt.