In 2014, 97% of bankruptcy filings were for personal bankruptcy. Harvard University published a recent study that found 62% of U.S. personal bankruptcies were due to medical expenses. Whatever your reason for considering personal bankruptcy, the first step is to educate yourself about the bankruptcy process. Bankruptcy attorneys can be an invaluable resource in understanding what’s expected of you. In this article, you’ll get an overview of the four most important aspects of bankruptcy to know before you file a claim.
The two types of bankruptcy available to individuals
Under bankruptcy law, there are two types of bankruptcy an individual can file for: Chapter 7 and Chapter 13.
- Chapter 7
In general, individuals with minimal assets, lower income, and more debt opt for a Chapter 7 bankruptcy claim. Designed primarily for debtors who don’t have the financial resources to pay their existing debts, Chapter 7 bankruptcy allows you to retain exempted assets while discharging unsecured debts. These non-exempt assets are then used to repay the secured debts. A couple things to be aware of with Chapter 7 bankrupties: First, student loan debts, past child support due, and taxes, etc. will not be dismissed. Second, this option may not be available to everyone. Bankruptcy attorneys can help you determine if you qualify. Third, a Chapter 7 case can cost an average of anywhere from $1,500 to $3,000. The good news is that with the help of bankruptcy attorneys, Chapter 7 bankruptcy claims have over a 95% success rate.
- Chapter 13
Individuals who have regular income but find themselves temporarily unable to repay their obligations may prefer the payment flexibility of a Chapter 13 bankruptcy. Under this option, you can opt to repay your debts in regular installments over three to five years. A trustee is set up to collect the payments as you make them and then transfers those payments to your creditors. If keeping your non-exempt property intact is important to you, or if you’re trying to buy yourself time against a pending foreclosure, this can be a good option.
Eligibility requirements to file for personal bankruptcy
To qualify for a Chapter 7 bankruptcy, you must earn no more than your state’s average income and pass a Means Test. The Means Test will further examine if your disposable income is low enough for you to satisfy the low income requirement under the Chapter 7 bankruptcy law. To qualify your monthly disposable income, when calculated in accordance with the Means Test, must be such that you can pay no more than a quarter of your non-secured debt over a five year period. If you don’t meet the requirements for a Chapter 7 bankruptcy, you’ll only be able to file Chapter 13; if you do meet the requirements, both options remain open to you.
These requirements can be confusing and convoluted to calculate, particularly since it’s at the court’s discretion what amounts to a reasonable level of monthly living expenses for you and your household. A benefit of working with qualified attorneys is they can help you navigate this process and determine which bankruptcy option is best for you.
The steps to filing for personal bankruptcy
Over 1.5 million people will file for bankruptcy in the average year, according to U.S. bankruptcy court statistics. The first step in the bankruptcy filing process involves completing a bankruptcy counseling course and receiving a certificate of completion. Bankruptcy counseling is designed to educate you about the bankruptcy process and serve as a prelude to receiving your bankruptcy education certificate. While the counseling certificate was to verify you understand the bankruptcy process, the education certificate will verify you’ve completed an instructional course on personal financial management. It’s best to consult with qualified bankruptcy attorneys for help in ensuring you meet these requirements.
How long will filing for bankruptcy remain on my record?
Filing for personal bankruptcy can help you get a fresh start on your debts, but it doesn’t come without ramifications. A bankruptcy can remain on your credit report for over a decade after you file. While having a bankruptcy stamp on your credit report doesn’t mean you won’t be approved for any credit, it can negatively affect your credit card prospects as well as your chances of obtaining a mortgage or loan.