Personal Bankruptcy

Individuals facing financial insolvency generally use bankruptcy as a last resort after exhausting all other avenues to settle their debts. Budgeting, lifestyle modification, debt consolidation, selling assets, increasing income and negotiated settlements are approaches that may help you to avoid bankruptcy. However, for some individuals bankruptcy may be the only viable way to get out from under their debt load and make a fresh start.

Under the U. S. Bankruptcy Code, there are two forms of bankruptcy that apply to individuals Chapter 13 and Chapter 7. Chapter 7 is the most extreme bankruptcy measure because it involves paying creditors through liquidation of all assets that are not exempt. Chapter 13 is a less extreme form of bankruptcy than Chapter 7 involving a payment plan extended over a number of years.

Filing Chapter 13

In Chapter 13 bankruptcy, the individual reorganizes finances and devises a payment plan to pay off creditors based on a schedule that spans three or five years, depending on financial restrictions. It is easier to qualify for a Chapter 13 Bankruptcy, because the stringent rules under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a new bankruptcy law passed by Congress in 2005, require individuals to pass a Means Test to qualify for Chapter 7. The government designed the test to determine whether there is a presumption of abuse in the attempt to file for bankruptcy. Individuals with net incomes above the established amount set by the Means Test are not granted a discharge of debt under Chapter 7 and their bankruptcy claims are denied.

Benefits in filing a Chapter 13 Bankruptcy may include the following:

1. If the homeowners mortgage is in default, he or she may be able to save the residence and get the mortgage reinstated through Chapter 13.
2. Chapter 13 avoids liquidation of valuable non-exempt property that would be liquidated by the trustee in Chapter 7.
3. Certain debts may not be discharged in Chapter 7, which makes Chapter 13 a more advantageous way to file bankruptcy since there is no fresh start from such debt.

For more information, see our Chapter 13 Bankruptcy section.

Filing Chapter 7

When there is substantial equity in a home or automobile making these assets exempt during a Chapter 7 bankruptcy, and when the individual has a low income level thus qualifying under the Means Test, Chapter 7 may be the most feasible way to become solvent again. Of course, your bankruptcy attorney can advise you regarding state laws that affect exemptions and what assets you will be forced to liquidate.

For more information, view our Chapter 7 Bankruptcy section.

Importance of Legal Advice and Guidance

In any personal bankruptcy, it is vital to consult an experienced attorney when seeking a legal remedy for insolvency. The legal expertise and knowledge a bankruptcy attorney provides can bring you peace of mind in knowing that you made the right choices. At Bailey & Galyen, our bankruptcy attorneys are dedicated to providing you with high quality legal services that are tailored to meet your financial needs.