Bankruptcy allows individuals and businesses to start over when finances have collapsed beyond reasonable repair. In 2015, 97% of bankruptcy cases filed were by individuals not businesses. The most common chapter files of individuals and businesses are Chapter 7 or 13. The laws on bankruptcy are constantly changing and can be incredibly complex depending on the nature of the debt.
Do I Need A Lawyer?
Although legal counsel is not required for filing for bankruptcy, a bankruptcy lawyer can help protect you from any more loss through their experience and knowledge. You may be putting yourself at risk if you represent yourself when filing for bankruptcy.
A qualified lawyer will help you determine if you need to file for a Chapter 7 or 13. Consider the following when deciding if you need to hire a lawyer:
- Which chapter of bankruptcy you need to file for
- If the debt is personal or business
- If spouses or employees will become affected
- Types of assets you risk losing
- How the proceedings may affect your credit
How Does Bankruptcy Work?
Upon consultation with a lawyer, you will be asked to provide all records regarding your expenses, assets, debts, and forms of income. From there, your lawyer will help you determine if you qualify for a Chapter 7 or 13, and file the claim from there.
Once the court determines if there are any other methods of handling your debts, they will require you complete credit counseling before moving forward and anything debt is absolved.
Types of Bankruptcies
It is important to determine what type of bankruptcy you need to file for.
- Municipalities and other public organizations must file a Chapter 9 to reorganize
- Businesses can file a Chapter 7 to liquidate, or Chapter 11 to reorganize
- Family farmers and fishermen can file a Chapter 12 for debt relief
- Parties from more than one country must file a Chapter 15
- Individuals can file either a Chapter 7 or a Chapter 13
Consult a lawyer if your bankruptcy case is more complex than an individual claim, or will require you filing more than one Chapter.
Chapter 7 Bankruptcy
A Chapter 7 will release you from repaying your debts, and permit you to keep any “exempt” property. Exempt property may change depending on your state. The court will allow individuals to choose between state or federal law for exemptions. A bankruptcy lawyer can also help you determine between these state exemptions depending what property you wish to keep. All other “non-exempt” property will be sold to help repay part of your debt.
Individuals, partnerships, businesses, and other corporations can file for a Chapter 7.
You qualify for a Chapter 7 if:
- Your debts total more than half your annual income
- It would take five or more years to pay off your debt
- Your debt interferes with essential aspects of your life
- You have little or no disposable income
- Your monthly income is below the median level in your state
If your individual debts are primarily consumer debts, you will have additional documents you may need to file. Consult a lawyer to discuss what records must be obtained.
Several records must be obtained to complete the Chapter 7 bankruptcy forms, including spousal records despite if you’re filing for joint bankruptcy:
- A list of all your creditors and their claims
- The source, amount, and frequency of your income
- A list of all of your property and assets
- A detailed list of your monthly living expenses
This process will require you to liquidate many assets to repay creditors, however, any income during this period will not be subject to redistribution. This process can take up to 6 months to complete.
A bankruptcy lawyer will ensure that all forms are filled out correctly, and assets are correctly distributed.
Chapter 13 Bankruptcy
Chapter 13 offers a solution for those who do not want to give up their property or do not qualify for Chapter 7. Similarly to a Chapter 11, this type of bankruptcy can apply to businesses, and protects your loan cosigners against collections.
In both of these filings, the debtor must reorganize expenses and design a repayment plan in addition to completing credit counselling. This plan should safeguard all assets against repossession or foreclosure, and forgive other debts. Filing a Chapter 13 will suspend any current foreclosures and payments of other debts.
You must provide the following for a Chapter 13:
- A list of creditors and the amount of their claims
- Sources and amount of income
- A list of the properties, contracts, and leases in your name
- A breakdown of your monthly living expenses
- All paid and unpaid tax information including your most recent tax return
Individuals filing a Chapter 13 can have no more than $394,725 in unsecured debt, and $1,184,200 in secured debts. Speak with a bankruptcy lawyer to ensure you understand all the terms of agreement, as failure to comply could risk dismissing the case.
What to do After You File for Bankruptcy
After your lawyer ensures that you understand the conditions of your bankruptcy agreement, they will require you to have a plan of consolidation. A bankruptcy lawyer may also have resources to ensure you develop a successful plan such as recommending a non profit credit counseling service.
It is vital that you stay on-track and have open communication with your bankruptcy lawyer. To find a qualified expert in your area, call our toll-free number 833-551-0101