Last Updated: July 1st, 2019 at 9:21 pm
Read Time: 6 Minutes
What is Bankruptcy?Bankruptcy is essentially a court proceeding. Here, a judge, in conjunction with a court trustee, examine the assets and liabilities of any individual or business who can’t pay their bills and wants to discharge such debts, so they are no longer legally required to pay them.Individuals that file for bankruptcy have debts they won’t be able to pay in a timely manner. People that took financial obligations like a mortgage, student loans, and auto loans, or in most cases all of them at once, are the ones that seek help from bankruptcy the most. Surprisingly, people, not businesses, are the ones filing for bankruptcy most frequently.However, while bankruptcy can offer people a chance to start over, it does affect credit score, people’s future ability to use money, and can even prevent foreclosure on a home.
Can Bankruptcy Wipe Away All My Debts?No. Bankruptcy will only apply to qualifying debts. Some financial responsibilities can’t be discharged through bankruptcy. For these type of debts, you’ll have to look at other options such as debt consolidation or a debt settlement. Debts and financial obligations that can’t be solved with bankruptcy include:
- Federal student loans
- Child support
- Debts after filing for bankruptcy
- Fraudulent loans
- DUI debts
Types of BankruptcyThere are several types of bankruptcy proceedings available for individuals and businesses. The most common types are Chapter 7 and Chapter 13. They each serve a specific purpose, and your debts will qualify you to either one or the other.
Chapter 7 BankruptcyChapter 7 is the most common form of bankruptcy filed in Florida. With 4,499 cases, that’s about 70% of the bankruptcy cases filed so far in 2019. Also known as “liquidation bankruptcy,” Chapter 7 is meant to discharge most of your unsecured debt, which includes credit card debt, medical bills, and other personal loans.To qualify for Chapter 7, you must pass the “means test.” This test looks at your financial records, income, expenses, and debt. The process to file for Chapter 7 lasts between three and four months. In Florida, if your current monthly household income is less than the Florida median income for a household of your size, there is a high probability you’ll qualify for Chapter 7 bankruptcy.Chapter 7 bankruptcy does get rid of your qualifying debt. However, it does so by selling nearly all your assets. This type of bankruptcy reflects on your credit report for at least 10 years.
Chapter 13 BankruptcyAlthough not as popular, Chapter 13 bankruptcy still accounted for 1,830 filings so far in 2019; that’s 28% of the cases. Also known as “wage earner’s bankruptcy,” Chapter 13 is the only option individuals have when repaying debt is impossible.To qualify for Chapter 13, individuals must have less than $394,725 in unsecured debt, such as credit card bills. They also must have less than $1,184,200 in secured debts, such as mortgages. However, individuals who file for Chapter 13 must live with a court-appointed trustee that will oversee their spending for years, and will also collect and distribute most of your payments.Chapter 13 bankruptcy allows you to keep most of your assets and enables you the possibility to repay all your debt with a 3-5 year payment plan. This type of bankruptcy reflects on your credit report for at least 7 years.
Other TypesOther common types of bankruptcy include:
- Chapter 9, which applies only to cities and towns.
- Chapter 11, which was designed for businesses.
- Chapter 12, which applies to family farms and family fishermen.
- Chapter 15, which applies to cross-border insolvency cases, which means the debtor has assets and debts both in the United States and in another country.