How Can I File for Bankruptcy?
There are several ways of filing for bankruptcy, and being familiar with all of them is very important. It’s just as crucial as knowing which debts bankruptcy clears, as well as understanding how to rebuild your credit after bankruptcy.
If you’re worried about what will happen to you after bankruptcy, don’t be. Bankruptcy can be very beneficial, especially if you have experienced bankruptcy lawyers from Escondido, CA, or across the country, helping you along. Now, let’s see how you can file for bankruptcy.
What are the 4 ways to file bankruptcy?
Depending on your income, your assets, as well as whether or not you’re filing bankruptcy on behalf of your business or not, there are various ways to file for bankruptcy. Deciding on the type of bankruptcy is best done alongside a bankruptcy attorney.
However, it is also important to familiarize yourself with the different ways to file for bankruptcy. Bankruptcy-filing methods are called Chapters, and it is up to you and your lawyer to choose the Chapter to file bankruptcy under.
There are, actually, six Chapters, but only four of them are applicable to the majority of bankruptcy cases in the USA. Let us take a look at the four ways in which you can decide to file for bankruptcy.
Chapter 7 is the most common type of filing for bankruptcy and, generally, the most suitable option for the majority of individuals. If you don’t own a large business or a family farmstead, chances are you’re going to opt for Chapter 7.
There are some vital characteristics of Chapter 7 bankruptcy you should be familiar with, so as to be able to decide if it’s the right choice for you.
- Chapter 7 helps you become free of the responsibility to repay all your debts to creditors. Once you finish the process of filing Chapter 7, you’ll be done with the majority of the debts you’ve accumulated.
- When you file Chapter 7, you get to keep all of your “exempt” assets. Although exempt property varies from one state to the other, they generally include:
- Your home
- Your work car
- Your work equipment
- Social Security checks
- Veteran’s benefits
- Retirement savings
- On the other hand, “non-exempt” property is the property the government will sell on your behalf and use it to repay your debts. Non-exempt property usually includes:
- Money in cash
- Stock investments
- Stamp or coin collections
- Bank accounts
- Second home
- Second car
- Chapter 7 bankruptcy remains on your credit report for a total of 10 years. It will have an immediate, but short-lived impact on your credit score, as you will begin to improve it as soon as you start rebuilding your finances.
- Chapter 7 is a good choice for all individuals whose incomes are low when compared to their debts and existential expenses.
Chapter 13 bankruptcies are not as common when it comes to bankruptcies filed by individuals, as they make up roughly 36% of all the non-business bankruptcies. However, if you fail to qualify for Chapter 7, or you’re unwilling to give up any of your property, Chapter 13 is the option for you.
There are several reasons why individuals decide to file Chapter 13 bankruptcy instead of going for Chapter 7:
- Chapter 13 bankruptcy gives you an opportunity to replay some of the debts towards your creditors in exchange for being forgiven the rest of the debts you’ve accumulated.
- In order to qualify for Chapter 13, there are two criteria you have to meet:
- Your unsecured debt, as of 2020, mustn’t be more than $394,725.
- Your secured debts, as of 2020, mustn’t exceed $1.184 million.
- Chapter 13 bankruptcy requires you to design a debt repayment plan for the following three to five years. When you complete the plan successfully, all of the remaining debts will be forgiven.
- However, it is best to hire a reputable bankruptcy attorney to help you with formulating a plan. The biggest mistake individuals who are trying to file Chapter 13 make is that they don’t finish their plan, which makes them then ineligible for bankruptcy under Chapter 13.
As you may have noticed, Chapter 11 comes only after Chapter 13. This is because Chapters 7 and 13 are the most common ways of filing for bankruptcy in the USA. However, that doesn’t mean Chapter 11 is unsuitable.
It just means that Chapter 11 has a different purpose to previously-mentioned Chapters. Bankruptcy under Chapter 11 is designed primarily for businesses. However, individuals can still file Chapter 11, but there are reasons why they tend not to do so, as you will see.
- Chapter 11 is generally the most complicated and complex way of filing for bankruptcy, as well as the most expensive one. That is why it is usually the choice of business owners, not individuals.
- Chapter 11 doesn’t come with any specified amount of income required to file for it, nor a specific level of debt that you may not exceed in order to qualify for it. As mentioned, anyone can file Chapter 11, but it is complicated and costly.
- Chapter 11 allows business enterprises to remain open all throughout the process of filing for bankruptcy. Although your business keeps running, you have to be aware of the fact that you have to make all your decisions with approval from the court.
Chapter 12 bankruptcy is available only to family fishermen or family farmers, making this a rather rare form of bankruptcy. However, that does not mean that it is not extremely suitable for individuals it is meant for.
- The court imposes a very strict set of rules that define who qualifies for Chapter 12. The rules are primarily based on the fact that you have to provide proof of earning annual income by working as a fisherman or a farmer.
- In order to qualify for Chapter 12, besides being a farmer or a fisherman, you still have to meet the following requirements:
- If you’re a farmer, your debts must not be over $4.03 million.
- If you’re a fisherman, your debts must not exceed $1.87 million.
- Chapter 12 requires you to complete your repayment plan in five years. However, this type of bankruptcy takes into account the seasonal nature of fishing and farming.
Need the help of the leading bankruptcy lawyers across Escondido, CA?
If your finances are not as you were planning them to be, and if you’re in need of professional assistance through the process of filing for bankruptcy, then Chang & Diamond should be your go-to bankruptcy experts.
We will do all that we can to help you navigate bankruptcy waters, and we are certain we can help you come out on top and start fresh. First, clear your mind at the San Pasqual Battlefield State Historic Park, and then contact us and see how we can help you!