Although it is a legal process that can help those who are struggling financially, many individuals still ask, “What does bankruptcy mean?” There is some basic information that you should understand before you decide to file.
What Is Bankruptcy?
The court system uses the term bankruptcy to describe a legal federal procedure. A bankruptcy court conducts this procedure. When successfully discharged, this process can help individuals and business owners get rid of their debts or begin the process of repaying their debts. If debtors can prove that they are qualified to receive a discharge, the court will provide them with an automatic stay during the procedure. A bankruptcy can be divided into either liquidation or reorganization.
What Are The Different Chapters of Bankruptcy?
When an individual asks what does bankruptcy mean, they are usually not aware there is more than one type of bankruptcy. There are several different types. The ones that individuals and business owners most commonly file are Chapter 7 and Chapter 13. The courts typically consider Chapter 7 as liquidation bankruptcies. Similarly, courts consider Chapter 13 as reorganization bankruptcies.
When you file for Chapter 7, this means that you have assets that can be sold, or liquidated, in order to repay the creditors you owe. A Chapter 13 filing means that you may be able to retain possession of your property, but you must create and submit a repayment plan to the court that will give you the opportunity to pay your debts off within three to five years. If you fail to fulfill your obligations, you could face even more legal issues.
Chapter 7 Eligibility
Before you can begin the process of filing for Chapter 7, you will have to be able to prove that you do not make enough money to qualify for a Chapter 13 repayment plan. This part of the process is called taking the Means test.
Debtors will also need to be aware of the types of debts that can be discharged. Credit card debts and unsecured loans are considered discharged debts. Child support and alimony payments are just some of the debts that cannot be forgiven.
Chapter 13 Eligibility
This type of bankruptcy, also called wage earner bankruptcy, is available to debtors who have a steady income source. There are certain limits to this type of filing. The amount of debt must be under the acceptable limit for filing. You can speak with a bankruptcy attorney to learn more about these limits.
The best way to understand what does bankruptcy mean is to schedule a consultation with an experienced bankruptcy attorney. They will provide you with the legal representation you need to help you during the process.
Contact us today to learn more about your options.