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Bankruptcy: How It Works, Types And Consequences

Bankruptcy: How It Works, Types And Consequences


The word bankruptcy can evoke all sorts of emotions and reactions. But few people know the ins and outs of the process and how it can provide a lifeline to those who are struggling to find their financial footing. To be clear, bankruptcy is not for everyone. Jumping into anything without first understanding the pros and cons of your options can lead you to less than desirable results. This is especially true with bankruptcy. Let’s take a look at the types of bankruptcies that are available, how bankruptcy generally works, and the consequences it may have on your financial health and future.

Types Of Bankruptcies

All told, there are six different types of bankruptcies. In reality, only Chapter 7 and Chapter 13 will apply to the vast majority of people who file. Below is a quick overview of the six different types.

1. Chapter 7

– Also known as liquidation bankruptcy, Chapter 7 is the most common form of bankruptcy for individual filers. Chapter 7 serves as a method for you to shed your unsecured debt. This means that your outstanding debts to credit card companies or medical providers may be eliminated through what is known as a discharge. However, mortgages, auto loans, child support, alimony, and student loan debt typically cannot be discharged via Chapter 7. This form of bankruptcy will stay on your credit report for 10 years. You generally will not qualify for Chapter 7 if you make more than the median income for wage earners with the same family size.

2. Chapter 13

– Another popular form of bankruptcy for individual filers, Chapter 13 seeks to reorganize your debt as opposed to eliminate it. Often, those who do not qualify for Chapter 7 due to high income will opt for Chapter 13. This form of bankruptcy places you on a repayment plan for a predetermined length of time so that you can hold onto your home and pay off a portion of your unsecured debt. Chapter 13 stays on your credit report for 7 years.

3. Chapter 11

– Typically reserved for businesses and corporations, Chapter 11 allows a business to continue to operate while paying off its debts to creditors. Some high value individual filers opt for Chapter 11 as they may not qualify for Chapter 13 if their income and assets exceed a set number.

4. Chapter 12

– Reserved specifically for family fisherman and family farmers, Chapter 12 allows you to continue to operate without having to liquidate or foreclose on your property.

5. Chapter 15

– This form of bankruptcy is available only to international filers who would like to avail themselves of U.S. bankruptcy protections.

6. Chapter 9

– Used exclusively in connection with governments and municipalities, Chapter 9 allows a government entity to reorganize their debt and develop a plan to repay their creditors.

 

How Bankruptcy Works

The formal process starts with you filing a petition for bankruptcy with the bankruptcy court in your area. Once your petition and related filings are submitted and you have completed the required bankruptcy-related educational course, the bankruptcy process will begin in earnest. This will involve a meeting of your creditors and your full disclosure of your financial picture. Depending on the type of bankruptcy that you qualify for, some or all of your debts will be discharged or you will enter into a repayment plan. Prior to completing the process, you will be required to attend a post-bankruptcy educational course where you will be given strategies to utilize in the future to avoid the financial pitfalls that necessitate a future bankruptcy filing.

 

Bankruptcy is not available or appropriate for every person, so learning the alternatives is crucial to making an informed and educated decision. If it is determined that bankruptcy is right for you, then you must decide which type best fits your financial situation. Individual filers typically will either select Chapter 7 or Chapter 13. Both forms require participation in a pre-bankruptcy education course to confirm which type you are eligible for. Filers with little to no income who wish to eliminate debt will most likely qualify for Chapter 7. Alternatively, those with higher incomes and assets will look to Chapter 13. It is recommended that you first consult with a financial professional or bankruptcy attorney to become fully aware of your options.

 

Consequences

The decision to file for bankruptcy is not one that you should enter into lightly. Each form of bankruptcy typically involves a severe hit to your credit report. What this means is that once your bankruptcy process is complete, it will become significantly more difficult for you to obtain a loan or establish a line of credit. Creditors will see your bankruptcy filing on your credit report for up to ten years, making sure the consequences of filing stay with you for the foreseeable future.

 

Florida Bankruptcy Lawyers At Your Service

The best decision for your financial future depends on many factors. Before deciding, it is important that you educate yourself on all of the applicable options. Perhaps no one is better suited at helping you navigate the world of bankruptcy than an experienced bankruptcy lawyer. While the bankruptcy process can be intimidating and confusing, having a trained professional on your side can make all the difference. The Bankruptcy Team, PLLC is dedicated to helping clients resolve their financial issues through bankruptcy, foreclosure or other means. Our bankruptcy lawyers will carefully review your situation and advise you on options that closely fit your needs. To consult with The Bankruptcy Team, PLLC, call or contact us today.


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J. Andrew Meyer

J. Andrew Meyer

Andrew Meyer was born in Deland, Florida, in 1970. He graduated with an International Baccalaureate Degree from St. Petersburg High School in 1988, and attended the University of Florida, graduating in 1991 with a degree in Economics awarded with High Honors. Mr. Meyer also attended law school at the University of Florida, receiving his juris doctorate degree in 1995. While at the University of Florida, Mr. Meyer was inducted into Florida Blue Key and Phi Beta Kappa. Mr. Meyer was first trained as a lawyer by Richard T. Earle, Jr., and thereafter worked at the Attorney General's Office for the State of Florida in the Bureau of Criminal Appeals before becoming a senior staff attorney for the Florida Second District Court of Appeal. Mr. Meyer also served as a law clerk to the Honorable Chris W. Altenbernd, Retired, at the Second District Court of Appeal. Following his time at the Second DCA, Mr. Meyer worked at Carlton Fields, focusing his practice on appellate matters. In 2004, Mr. Meyer became an advocate for consumers as a partner at James Hoyer, and then later moved to Morgan & Morgan's class action department in 2009.

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