Declaring bankruptcy may seem like an end-all solution—especially if you grew up playing Monopoly or watching Wheel of Fortune. However, the purpose of bankruptcy is to provide a safety net in the case of financial stressors and over-piled debts. While most news articles surrounding bankruptcy cover large corporations or business franchises (i.e. Toys R Us, Modells, etc), the vast majority of bankruptcy filings are actually done by individuals.
Let’s say you’re in the middle of intense divorce proceedings the week you get laid off from your job. Your mortgage and car payments are due at the end of the month and what’s left of your income is currently stretched between a million different things. Your best bet would be filing for bankruptcy in order to give yourself a “fresh start” financially.
When you file for bankruptcy, you’re ultimately offering up your assets to a court that will then determine distribution based on how the claim is filed.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy filing is the most common claim for individuals. The bank will wipe out all remaining debt including any credit card balances, student loans, and other bills in one quick process. To get the money needed for this clean sweep, the bank will appoint a bankruptcy trustee who will sell certain assets in order to pay creditors. Luckily, you don’t have to give up everything you own. You will be able to keep exempt assets—usually defined as anything necessary to maintain your job and home, and can include furniture, clothing, and sometimes vehicles. The assets trustees will likely liquidate are:
- Second property or vehicle
- Exotic animals
- Expensive clothes and jewelry
Chapter 13 Bankruptcy
In order to file for Chapter 13 bankruptcy, you must have a reliable source of income in order to personally repay some of your debt. This is also called “wage earner bankruptcy.” When filing, you must also provide a plan detailing how you will be repaying the debt over the course of the next three to five years. The amount you are required to pay depends on your earning, how much you owe, and the value of your assets. A Chapter 13 Bankruptcy claim is usually used to catch up on the overdue house and car payments in order to avoid repossession or foreclosure by the bank.
If you are considering filing for either Chapter 7 or 13 bankruptcy, you should meet with an attorney, like a bankruptcy lawyer in Las Vegas, NV, who can help you go over your options. They will also ensure you file your claim under the right chapter and can still protect your exempt assets.