For individuals, the most common bankruptcy options are Chapter 7 and Chapter 13.
Determining which one to file under depends on several factors. Your attorney will review your income, expenses, property/assets, type and amount of debt, and whether you have a previous bankruptcy discharge when recommending the best option for you.
In a Chapter 7 Bankruptcy, your income, expenses will be considered and the assets that you want to keep (autos, homes, etc…) will be evaluated to determine if they are exempt. Exempt assets are not subject to being seized by the Chapter 7 Trustee. (Excessive non-exempt assets or income will be common reasons to file under Chapter 13.) Retirement assets such as a 401K or IRA are “exempt” and safe from the reach of your creditors and the trustee. You should think twice about using an “exempt” asset to pay your debts. Non-exempt assets can be seized by the Chapter 7 Trustee, but normally they will only be interested in those which are easily converted to cash. Bank accounts, proceeds from litigation and tax refunds are all popular items for the Chapter 7 Trustee to go after. Non-exempt equity in a home is certainly within the reach of the Chapter 7 Trustee, but due to the costs and time involved in reaching that equity it is often ignored and ultimately abandoned.
Chapter 13 Bankruptcy, also known as “reorganization”, requires a debt repayment “Plan” to be filed with the court. Your “Plan” will show how your debt (all or a portion) will be paid off over the next three to five years. Once you have filed for Chapter 13 Bankruptcy, creditors can no longer contact or harass you (same as with a Chapter 7). Your secured property can be retained provided you make the payments as agreed to under your “Plan” provisions. If you are behind in house or auto loan payments then this option may be the best choice for you because you can “catch up” those late payments during the life of the “Plan”. We can also sometimes “cram down” the amount owed on an auto, effectively reducing the balance owed to the current market value.
Attorneys at John B. LaRue PC, John LaRue and Corinne Erwin, are highly skilled to guide you through the process of understanding which option best fits your need. Put your mind at ease; begin your path to financial independence today; give them a call to get started with a free initial consultation @ 765-287-1717.