Bankruptcy

Bankruptcy is a legal matter, and should be pursued only after exhausting alternatives such as debt consolidation, budgeting, and seeking the assistance of a debt counselor.  There are four common types of bankruptcy; however, only two forms apply to individuals:

Chapter 13 Bankruptcy

Chapter 13 bankruptcy gives the individual the chance to reduce the amount owed on debts while keeping the property owned.  Generally, Chapter 13 bankruptcy applies to individuals with less than $250,000 in unsecured debt and $750,000 in secured debt.

• Unsecured debt does not include collateral as a guarantee of payment.  For example, credit card debt is unsecured debt.
• Secured debt is secured through collateral or tangible property. A mortgage is a loan that is secured with the home as property. In case of default on the loan, the lender can seize the property to help recover the remaining balance owed.

Chapter 13 allows the individual to restructure payments and repay debt obligations over a three to five year timeframe.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy eliminates most of the debt the individual owes, and repayment is not necessary.  In bankruptcy court, the individual would provide a list of all property owned and property desired to be exempt from the bankruptcy proceeding.  Outstanding loans on property the court allows the individual to keep still needs to be repaid.  The trustee of the bankruptcy has the right to sell, or liquidate, all non exempt assets.

Even a Chapter 7 bankruptcy proceeding may not discharge all debt obligations. For example, student loans, alimony, child support, and property taxes may still be outstanding and in need of repayment.

Bankruptcy is a legal matter, and the advice of an attorney is recommended.