How Does Bankruptcy Work?

Bankruptcy law allows you to eliminate all, or a portion, of your debts.  First, you’ll want to determine if bankruptcy is right for you  — calculate your total amount of debt and categorize each type of debt into unsecured, secured, or non-dischargeable. There is plenty of free bankruptcy information on Bankruptcy HQ to help you get started.

• Unsecured debts:  Debts incurred based on a repayment agreement that did not require you to list any collateral.  These are the most common types of debts and include medical bills, credit cards, payday loans, and utility bills.
• Secured debts: include loans secured by real estate, automobiles, or other large items.  You must keep paying for any secured debts if you wish to keep the property that is secured after the bankruptcy.
• Non-dischargeable debts:  Debts that cannot be eliminated in a bankruptcy proceeding, including parking tickets, IRS debt, student loans, back child support, and most other governmental debts.

Bankruptcy Code Preparation

Once you have all your debts organized, you’ll need to create a monthly budget detailing all of your income and expenses.  The key here is to be realistic about your monthly expenses.  We recommend reviewing the bank statements for the last 6 months to get the most accurate picture.  When the budget is completed, you’ll be able to determine your monthly disposable income — the amount of money remaining each month after you have paid all your bills.  Now calculate how long it would take to repay all of your debt if you put all of your disposable income toward repaying the creditors each month  (don’t forget to take into account interest and other fees).  If it would take longer than 3-5 years then keep reading…

Chapter 7 vs. Chapter 13

Next, you’ll want to research the differences between both Chapter 7 bankruptcy information and Chapter 13 bankruptcy information, which are named after the corresponding sections of the Federal Bankruptcy Code.  Bankruptcy is federal law and the majority of bankruptcy information is applicable nationwide, but each state has its own list of exemptions that dictate how many of your assets you are able to keep and publishes a median income for the state.  You can learn more about the bankruptcy laws in your state by clicking on your state in the map at the bottom of the page.

Chapter 7 Bankruptcy Information

A Chapter 7 bankruptcy is designed to eliminate all unsecured debts, with the exception of some government debts including taxes and child support.  To qualify for a Chapter 7 bankruptcy the court will examine your income, expenses, and value of any assets that you own.  The means test and the state exemptions can be tricky, and I’d recommend relying on a bankruptcy attorney for this part of the analysis.  The majority of people who file Chapter 7 bankruptcy don’t lose any property and are able to keep their house and car, providing they are current on the payments.

Chapter 13 Bankruptcy Information

A Chapter 13 bankruptcy is a debt repayment plan where you repay a percentage (sometimes as low as 10%) of your unsecured debts over a period of 3-5 years, during which time you are protected from any further collection activity by your creditors.  A Chapter 13 bankruptcy is often filed to stop a foreclosure and can give the homeowner 3-5 years to repay the arrears owed on the mortgage.  Individuals who may not qualify for a Chapter 7 bankruptcy due to substantial income or assets may also file a Chapter 13 bankruptcy.

Learn Bankruptcy Rules

Once you have learned the basics of bankruptcy, you’re ready to talk to a local bankruptcy attorney. In can be confusing learning about the bankruptcy means test and other complicated information.  To receive your FREE, no-obligation evaluation, just complete the short form above or call (877) 219-3151.