Bankruptcy is the process by which people (or businesses) who cannot repay their debts can seek relief from some or all those debts. There are two primary types that individuals use, known as chapter 7 bankruptcy and chapter 13 bankruptcy. Both of these types of bankruptcy have pros and cons; which one is best for you depends on your specific situation. We’ll give you an overview of each, but we also recommend that you consult an attorney before making decisions, as legal expertise can save you a lot of effort and money. A reputable law firm can tailor the process to your needs and ensure you end up with the best possible outcome.
Chapter 7
Chapter 7 is what many people think of when they consider bankruptcy. Also known as liquidation bankruptcy, chapter 7 begins with obtaining a court-appointed trustee that oversees your case. Their job, in part, is to take what assets you have, such as houses or cars, sell them, and distribute them to your creditors as partial payment of your debts.
Essentially, your creditors are getting a fraction of what you owe them through the liquidation of your assets, and you’re getting the entire debt cleared. The trustee will use your assets to dispose of your debts, but you are generally able to mark certain property exempt from liquidation so that you can rebuild your life after bankruptcy. The rules for what you can keep vary from state to state.
The opportunity for a fresh start is often worth losing many of your assets. This method typically only takes a few months, and then you can begin rebuilding your life.
Chapter 13
Chapter 13 is a second option available for individuals. It’s a more complicated process than chapter 7, often taking 3-5 years to complete, but it can be a much better plan in the long term for those with significant assets that they wish to protect.
Chapter 13 bankruptcy allows you to establish a repayment plan that designates your discretionary income to pay toward your debts over several years. Chapter 13 filers also typically must attend credit counseling and pay significant court fees. The judge, bankruptcy trustee, and creditors will ensure your repayment plan complies with bankruptcy law and, if you complete the plan in good faith, your debts will be discharged even though the amount you repay may be far less than your debt.
This discharge of debt is dependent on completing a three-to-five-year plan that protects your interests and is approved by a judge while overcoming any objections raised by your creditors. Filing Chapter 13 bankruptcy allows debtors to protect their assets and come out with their property intact.
Which is best for you?
In general, chapter 7 tends to be a better option for those with minimal assets and property, while chapter 13 tends to work better for those with significant assets. However, there is a lot of variation, and every case is different.
Either way, the bankruptcy process is confusing for many and protecting your interests against creditors can be a challenge of its own. Your creditors have staff members dedicated to getting the better end of the deal.
This is why competent and dedicated client representation is the single biggest variable in the outcome of bankruptcy proceedings. It’s the only way to ensure your interests are safeguarded.
Bankruptcy Fraud
One of the worst things that can go wrong in the process of declaring bankruptcy is being accused of fraud. If the authorities believe you are misrepresenting or falsifying your finances intentionally for personal gain, you could face criminal charges of fraud with severe consequences.
Hiding information or lying can get you in trouble, even if you actually had no intention of committing fraud. Don’t let yourself be pushed around or manipulated by prosecutors and law enforcement.
The best thing you can do if you’re accused of fraud is to find competent legal counsel as soon as possible. An attorney can help you clear your name and get the new start you’ve been looking for.
Representation
It’s possible to represent yourself in bankruptcy proceedings, but in general, those who do represent themselves receive poorer outcomes than if they had sought the assistance of a bankruptcy fraud lawyer.
If you must declare bankruptcy, do your research and hire professionals before approaching the court. That will not only give you the best shot of making the bankruptcy system work in your favor, it will also protect you from inadvertently committing bankruptcy fraud. If you are charged with fraud, seek legal counsel as soon as possible to find out your options.
