Two Methods Of Filing Bankruptcy
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Two Methods of Filing Bankruptcy
Overview
Navigating bankruptcy can be overwhelming. Two primary ways exist for an individual to declare bankruptcy. The most common approach is for the person to voluntarily file a petition. Alternatively, creditors may request that the court declare someone bankrupt. In both scenarios, a Bankruptcy Trustee administers the process.
Types of Bankruptcy
There are two main types of bankruptcies for individuals, each addressing debt differently.
Chapter 7 Bankruptcy:
This option is typically chosen by those with few assets and significant debts, such as credit card balances, store purchases, and hospital bills. In Chapter 7, creditors are paid from non-exempt assets owned by the debtor. It's important to note that some debts aren’t dischargeable in Chapter 7 but may be in Chapter 13. Dischargeable means that you are no longer required to pay the debt if the court grants the discharge.
Chapter 13 Bankruptcy:
Debtors opt for Chapter 13 when they’re behind on rent, mortgage, car loans, or other secured debts, have non-dischargeable debts under Chapter 7, or possess assets they want to keep. Chapter 13 also protects co-signers or spouses who may be liable for debts. In this case, creditors are paid from the debtor's future income through a proposed repayment plan. To qualify, a debtor must have a regular income, which can include wages, commissions, public benefits, social security, unemployment compensation, alimony, child support, pensions, or other predictable earnings.
Legal Considerations
Some state courts, like those in Illinois, protect IRA accounts in bankruptcy. However, University of Illinois bankruptcy professor Charles Tabb mentions that Roth IRAs might not have the same protections due to their withdrawal flexibility, making this a potential concern.
Deciding which type of bankruptcy to file and understanding asset protection are just a few challenges that may arise.
Filing Guidelines
When filing for bankruptcy, you need to provide a comprehensive list of your current income sources and expected expenses post-filing. This is crucial, as a judge may dismiss your case if they determine that your budget allows you to repay creditors easily. In a Chapter 13 filing, the monthly repayment amount is determined by the budget submitted to the court.
Understanding these processes and considerations is key to effectively managing bankruptcy and protecting your financial future.
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