Filing for bankruptcy is not something that many people consider when they are facing financial turmoil. But did you know that chapter 7 bankruptcy could actually be the key to restarting your financial situation? It is a complete liquidation or reorganization of your assets that can decrease or completely resolve certain debts.
There are two primary types of bankruptcies for average citizens: chapter 7 and chapter 13. In order to file for either type, you must meet the qualification requirements. Continue reading to learn more about the types of bankruptcies available, including who qualifies and how to file.
If you are facing serious financial troubles, filing for bankruptcy could help you restart your situation. There are two primary types of bankruptcies for which you may qualify as a regular citizen: chapter 7 and chapter 13.
Both chapter 7 bankruptcy and chapter 13 bankruptcy can help you reduce or eliminate your debt. However, there are a few distinct differences between them that could affect how your debts are resolved.
Chapter 7 bankruptcy is a complete liquidation of your assets. In other words, you agree to sell all your assets, or things of value, to the people or companies to which you owe money. These creditors buy your assets in exchange for resolving your debts to them.
If you do not have the means to repay your debt through cash, chapter 7 bankruptcy can help you get rid of the debt by paying for it with other valuables. Your assets are divided into three main categories:
1. Personal property – This includes anything you own, such as jewelry, furniture, your car, etc.
2. Real property – Sometimes referred to as “real estate property,” this includes any property you own, such as your home.
3. Intangible property – This includes anything of value that you cannot touch, like money in a bank or retirement account.
When you file for bankruptcy through chapter 7, you can declare some of your assets as “exempt,” meaning they cannot be sold to creditors.
However, there are limits to the amount of exemptions you can claim, known as exemption limits. Some limits are set by the federal government, while others are determined by individual states.
With chapter 7 bankruptcy, there are certain types of debt that cannot be forgiven. These are known as nondischargeable debts. You cannot resolve the following types of debts by filing for Chapter 7:
- Student loan debt
- Personal injury debt
- Court-ordered alimony, child support or spousal support
- Government fines or penalties
- Certain homeowner’s association (HOA) fees
- Attorney fees for child custody cases
- Criminal restitution and other court fines