There are different types of bankruptcy and each is designed for a different purpose. The one most people think of is an individual “straight bankruptcy” known as a Chapter 7.
Frequently people ask if it will ruin their credit. Usually, by the time a person is considering bankruptcy, their credit is already shot. If they have a judgment against them or are being sued or garnished, bankruptcy will improve their financial situation. People can usually keep and pay for their house and cars, especially if they are current on their payments.
In Alabama (and it differs from state to state) people who file are entitled to keep $7,750 in personal property – cars, furniture, clothing, etc. Tools of (your) trade are exempt as are certain pension plans and workers’ compensation.
An individual homeowner may keep the first $15,500 in home equity while a married couple may keep $31,000 in equity.
Generally, all debts are discharged – no longer owed – with some exceptions such as alimony, child support, student loans, and criminal restitution.
There are income limits per family to be able to file a Chapter 7.
There is a functional and well-thought-out type of bankruptcy for businesses that find themselves in trouble. These are known as Chapter 11 plans and are generally done by lawyers who are familiar with them. This is a pretty specialized area of the law.
Chapter 13 bankruptcy allows a debtor to repay certain debts, including the cost of bankruptcy over a period of time, generally 60 months.
This type of plan is known as a “wage earners plan.” These plans allow more flexibility in how certain debts are kept and repaid. Lawyers who practice Chapter 13 bankruptcy do a lot of work in formulating and managing these plans.
Buckle up, drive safely, and as always, your referrals are appreciated!