The federal Bankruptcy Code is a series of laws under which individuals and business entities (i.e., corporations) can obtain debt relief. Said relief may be in the form of a restructuring of the debt, reduction, or even discharge (in other words, the debt goes away). While bankruptcy falls under Federal jurisdiction, some details vary from one state to another. A bankruptcy attorney can advise you as to which laws apply to your specific situation. Here are some of the different options available.
Chapter 7
This is also known as a “straight bankruptcy,” or “liquidation.” This type of bankruptcy is the simplest for a Rockville bankruptcy lawyer to handle and is available to individuals, partnerships and business entities. In this type of bankruptcy, property not classified as “exempt” is sold off (liquidated) in order to pay creditors. Additionally, mortgage and student loans and other types of securitized debts will remain. Debts that can be discharged under Chapter 7 include:
- Consumer and credit card debt
- Medical debt
- Personal loans
- Civil court judgments
- Past due utility bills
Chapter 7 is a good option for people who do not own much in the way of property or assets. Be aware, however, that a Chapter 7 bankruptcy remains on a consumer’s credit report for 10 years.
Chapter 11
Of all forms of bankruptcy under the U.S. Bankruptcy Code, Chapter 11 is the most complicated and costly. It is used primarily by businesses and is a restructuring that allows a business to continue operations while developing a plan to repay creditors. Because of its complexity and the difficulty involved in qualifying, few individuals file for bankruptcy under Chapter 11. However, if a person has a steady income and earns too much to qualify for Chapter 7 or has too much debt for a Chapter 13 restructuring, Chapter 11 may offer some relief, including:
- More time to repay the debt
- Lower interest rates
- Reduction in balances owed
Chapter 13
Individuals who cannot qualify for Chapter 7 or 11 can get relief under Chapter 13. Provided the individual’s income is sufficient and his or her debts do not exceed a certain level, Chapter 13 can offer a number of benefits. When the court grants this type of bankruptcy, the consumer enters into an income-based repayment plan for a period of between three and five years. After this, provided the repayment plan has been followed rigorously, any remaining balances are discharged.
Unlike Chapter 7, a Chapter 13 bankruptcy is removed from the consumer’s credit report after seven years.
