Personal bankruptcy options and advantages

March 20, 2013 (Press-News.org) Personal bankruptcy options and advantages

Article provided by Law Office of Eric K. Fox
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When it comes to dealing with outstanding financial obligations, bankruptcy is considered a remedy of last resort. Yet when debtors in financial distress run out of other options have run out, they need to know how bankruptcy can help them, as well as understand how the different protection mechanisms work under the various chapters of the bankruptcy code. Two chapters of that code in particular -- Chapter 7 and Chapter 13 -- provide important remedies for debtors seeking to improve their financial situations over the long term.

Chapter 7 or Chapter 13?

Think of the difference between Chapter 7 and Chapter 13 bankruptcy as the difference between liquidation and refinancing. In a Chapter 7 bankruptcy, all of the debtor's assets are liquidated in order to satisfy outstanding debts, unless those assets are exempt from liquidation. These exemptions include certain necessities, such as clothes, reasonable household furnishings and electronics, some cash assets, a certain amount of equity in a home, as well as other things like a retirement account, 401k, or pension. Additionally, a Chapter 7 bankruptcy takes just a matter of months -- for the trustee to make sure there are no assets to liquidate, or the amount of time necessary to liquidate assets which are above the exemption allowances.

In contrast, a Chapter 13 bankruptcy takes 3-5 years to complete, during which time the debtor endeavors to pay off a percentage, if not all, of the outstanding debt obligations according to the repayment terms of the bankruptcy. Because Chapter 13 bankruptcy is generally less injurious to creditors, this form of bankruptcy remains on a debtor's credit report for only approximately 2 years after completion, while a Chapter 7 bankruptcy stays on a credit report for approximately 7-10 years from the date you file.

Advantages of bankruptcy

Regardless of which chapter of the bankruptcy code a debtor chooses, there are certain benefits that are common to all bankruptcy filings. For example, the automatic stay imposed by the bankruptcy court will be imposed in a proceeding in either chapter. The stay prevents collection actions against a debtor who has filed for bankruptcy. The amount that creditors eventually receive is sorted out in bankruptcy court. The automatic stay can be extraordinarily helpful, namely because it allows debtors to retain some of their assets pursuant to a more orderly, holistic approach that is consistent with the priorities creditors are assigned under the law.

Debtors also have the ability to discharge debts under Chapter 7 bankruptcy and Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, a debtor is required to pay at a minimum the amount creditors would have received had the debtor filed a for a Chapter 7 liquidation, or what the debtor can afford to pay over 3-5 years. At the end of the Chapter 13, whatever is left over (any remaining debt) is discharged.

Contact a bankruptcy attorney to learn more

Bankruptcy might seem undesirable, but it can be a useful tool for those with serious financial troubles. If you've tried to deal with your debt on your own and feel like you are running out of options, consult an experienced bankruptcy attorney today to learn more about whether bankruptcy might be your best long-term solution.