What is bankruptcy?
In a nutshell Bankruptcy is a legal procedure designed to help individuals and business get a fresh financial start. There are 6 types, or chapters, of bankruptcy. The ones people are probably most familiar with would be chapter 7 bankruptcy or chapter 13 bankruptcy. These are typically used by a person in debt, called a debtor, who struggles to pay their debts to their creditors on schedule. Bankruptcy is based on Federal Law and so it is those laws that dictate what happens to your various types of debts, depending on which chapter of the law is used. However, there are also state laws that may provide additional protection to certain assets, so it would be beneficial to consult with a lawyer from your state. If you are from Illinois feel free to contact Jason.
Depending on the type of bankruptcy (whether it is chapter 7, 9, 12, or 13 etc.), the overall goal is to provide individuals or businesses, who find themselves, for one reason or another, being crushed by their debts, a chance to get free of those debts. This may involve selling your assets to help pay them off, it may involve setting up a repayment plan, but ultimately it allows you to get caught back up, and on track to financial freedom.
Many things can happen to us throughout our lives, a trip to the hospital, job loss, divorce etcetera. Unfortunately creditors do not look at these issues as reasons to stop payments, even if for us it means that we have to decide between the mortgage payment or dinner for the next few weeks. Bankruptcy ultimately allows us to recover from these financial obligations. As soon as you have begun the process of filing a bankruptcy petition, all creditors are not allowed to collect payments from you without the court’s permission. This halting of payments can help you keep your heating on during winter or keep your car from being repossessed to continue to travel to work.
How do you declare bankruptcy?
Bankruptcy is usually declared by a debtor and can be done by the debtor himself but it is highly advisable to make use of a bankruptcy attorney (such as Jason from the Law Office of Jason A. Borg). The attorney will submit certain files and forms to federal court which will then begin the process of bankruptcy. It is not an overnight thing nor is it as simple as calling your creditors and declaring yourself bankrupt. The court will review your file your assets and work with you on how best to pay the creditors.
What’s the difference between chapter 7 and chapter 13?
The main difference between chapter 7 and chapter 13 is fairly simple. Chapter 13 involves continuing to repay debts and can be thought of as more of a consolidation and a catch-up on your debts to allow you to still pay off your creditors but in a more manageable way for your situation.
Chapter 7 means that you will liquidate or rather you will take all your assets and property and sell them so that you have as much financial ability to pay the rest of your debts and then the debts are wiped. The court will prioritize the credit owed in who will get paid from liquidating assets. For example if you aren’t able to provide the full amount then a creditor for your mortgage will probably have a higher priority than your credit card payments. Most of the debts that are leftover will be stricken and the debtor will be able to start fresh with their finances.
What about student loans?
There are some types of debts that cannot be stricken from collection. For example student loans cannot be forgiven through bankruptcy. These are called non-dischargeable debts. This is why it will be important to work an attorney so that you can understand what you are getting yourself into by petitioning for bankruptcy. A lawyer will help you navigate the types of debts that are forgivable and those that are not. Please contact the Law Office of Jason A. Borg for more answers to these questions or to learn what we can provide to allow you the best outcome and get you back on your feet and reach financial freedom once more.