Debt Relief May Be Available Through the Right Form of Bankruptcy
Federal bankruptcy law can provide a financial fresh start for people and businesses so deep in debt they cannot pay it. Debt relief can take three forms.
Chapter 7 – also called “liquidation,” releases a debtor from most kinds of debts. This includes credit card, medical, most law suit debts and many others. Even some income tax debts can be erased. Other kinds of debts cannot be eliminated, such as student loans and child support. As long as you make your mortgage payments, you will keep your house. The same goes for cars and trucks. If you have any property that is not protected by law, it may be sold to pay creditors.
Chapter 13 – requires that you pay some of the debt you owe, but may save your home from foreclosure. It involves a payment plan. If you have stable income sufficient for living expenses plus the missed mortgage payments (spread out over 3 to 5 years), plus certain other debts and other costs, a Ch. 13 plan may be the best way forward. In Ch. 13 debts without collateral, such as credit cards, are paid off at a fraction of what was owed and the balance is eliminated.
Chapter 11 – is the bankruptcy mechanism available to large businesses, under certain conditions, that allows them to get relief from some debt and reorganize their business, rather than close its doors. If the debts with collateral are $1,149,525 or less and if the other debts are less than $383,175 (effective April 1, 2013), then in some cases the business may file a less expensive Ch. 13 case.
An attorney can help you figure out which form of bankruptcy would work for you.
Creditors should know that bankruptcy can be contested for fraud or other reasons.