If you're drowning in debt and feel like you will never get your head above water, you are likely beyond stressed and frustrated. If you are married, your finances are probably causing major issues there, too, and everyone knows money problems are frequently cited as the reason for divorce. Thankfully, the law allows for a respite from severe financial difficulties through the bankruptcy code. The two most common types of bankruptcy that individuals file is Chapter 7 and Chapter 13. Here is a look at each of these.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is also referred to as liquidation. This type of bankruptcy is when the allowable debts are liquidated or discharged. In other words, the debts are essentially satisfied, and the debtor is no longer held responsible for those debts. A Chapter 7 bankruptcy is usually done when there isn't enough income coming in or expected to come in to ever be able to satisfy the debts; the income to debt ratio is just too lopsided.
What Is Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is essentially a reorganization plan. Rather than completely discharging all allowable debt, with a Chapter 13 bankruptcy, a person or couple who have reliable income are allowed to restructure their debt. They may negotiate with their creditors to accept a lesser amount or to change the repayment terms they initially agreed to. The repayment period is typically set to a period of three to five years, and at the end of the specified period, the debts are considered satisfied as long as the agreed-upon payment plan was followed.
Which Debts Are Not Allowed To Be Discharged Under Bankruptcy Law?
Not all debts can be wiped clean or renegotiated. Child support and alimony or spousal support payments cannot be discharged in a bankruptcy. However, filing bankruptcy for the debts that can be discharged obviously frees up more money, making it easier to meet these legal financial obligations.
Debts that were entered into fraudulently are also normally not allowed to be discharged by the bankruptcy court. If you lied to obtain a line of credit you would normally have been denied, you will likely need to repay the entire amount. If you have committed a crime while under the influence and the victim was given a monetary award, that will not be able to be discharged, either.
Student loans are unfortunately not currently allowed to be discharged except under very rare circumstance. However, student loans were allowed to be discharged in the past, so it is not out of the realm of possibility they may be again in the future. If student loans are a major component of your debt, a bankruptcy attorney will be able to provide you more information. Personal income tax bills incurred in the past three years will also not be able to be discharged.
For more information, contact a local bankruptcy law firm.
Share7 March 2019
Too many single people assume they don't need to plan their estate. My brother fell into this category, and his unexpected passing left our entire family struggling to deal with his home, belongings, and financial accounts. It took nearly three years for the courts to set up a deal because he left no paperwork detailing how he wanted his estate divided. The situation immediately convinced me to work on my own estate, even though I'm still in my early 30's and don't have children or a spouse to worry about. Since it's a little harder to pick beneficiaries and estate managers when you're single, I collected the resources I used for making my own decisions and decided to publish them here on my blog. Use these resources before talking to an estate planning attorney so you're prepared for making hard decisions.