What happens when you declare bankruptcy?

You are heavily laden with debt and are struggling to pay off debt repayments each month. You also barely have enough to pay for your personal expenditure and you realize that your debt snowballs each month as your income is not increasing correspondingly. Thus, if you do decide to declare bankruptcy, you first need to know the various conditions within bankruptcy laws, the implications of each as well as the different types of bankruptcy chapters.

Chapter 7 Bankruptcy
Individuals and businesses can file for chapter 7 bankruptcy in order to liquidate assets to pay off debt. This bankruptcy process goes on for between 3 and 6 months, in which time all unsecured debt belonging to you will be sold off. Under chapter 7, there is a classification of assets that are exempted from liquidation, such as home furniture, car and clothing. You have two choices for your secured debt; either you agree to pay off the remaining debt, or let it be repossessed by the lender. Filing under this chapter allows you to eliminate most of your debt for credit cards, mortgage loans and medical charges. However, a few types of debt will not be eliminated such as student loans, alimony and child support as well as debt that are declared non-dischargeable by the court.

Chapter 13 Bankruptcy
Anyone who files for Chapter 13 Bankruptcy is expected to be continuously earning a steady income before and after filing. Also known as a reorganization bankruptcy code, you are required to repay your debt over a period of 3 to 5 years based on a proposal that you submit to the court. However, the repayment value that you submit is subjected to a minimum sum in comparison to the amount that your creditors would have received if you had filed under Chapter 7. Chapter 13 also allows you to reduce the debt of certain assets that depreciate in value over time such as your car, with the condition that you pay up the amount due at the end of the repayment period. In the end, filing under Chapter 13 allows you to stop creditors from following up on your payments, as well as to stop a foreclosure on your home from occuring.

Chapter 11 Bankruptcy
Filing under Chapter 11 bankruptcy is often used by individuals who can no longer file under Chapter 13 as their total secured debt is more than $922,975, their total unsecured debt is in excess of $307,675, or if many of their owned assets are non-exempt assets under Chapter 13. Although the individual will still need to present a debt reorganization proposal to the court, anyone who files under Chapter 11 will probably be in a bankruptcy process for a longer period with huge costs. This is due to the high legal fees as well as attorney retainer costs as it is compulsory to engage lawyers for Chapter 11 filings and pay a quarterly fee calculated as a percentage of your debt.