In the world of finance, what is the difference between Chapter 7 and Chapter 13? As humans, we have an instinct to survive. We struggle to keep our financial head above water. We work a second job. We cut costs. We borrow to keep our creditors happy. However, sometimes it is not enough. Our last option may be to file for bankruptcy.
Nevertheless, bankruptcy is actually more complicated than we might expect. It can involve several components, including Chapter 7, Chapter 13, divorce, foreclosures, garnishments, judgments, levies, liens, student loans, and tax debt. Here are some tips to consider when considering bankruptcy:
1. Consider bankruptcy as a last resort
Choosing to file for bankruptcy is different from choosing what clothes you will wear in the morning, or choosing what you will order for lunch. Filing for bankruptcy is a major decision that can have major consequences. If you have an overbearing financial burden that factors such as medical bills have caused, then filing for bankruptcy (such as through a birmingham bankruptcy lawyer) can provide some financial relief. However, in the long term, it is not a panacea for financial difficulties. It is more important to take certain precautions, such as curbing your spending.
2. Understand exactly what bankruptcy is
Before deciding if bankruptcy is right for you, the most important step is to comprehend fully what the procedure involves. Bankruptcy is a federal procedure that provides the debtor with various options.
Two basic types of bankruptcies exist. One option is to eliminate your debts, through a Chapter 7, or "liquidation" bankruptcy. In this process, you can sell (liquidate) all of your assets, in order to pay your debts. Another option is for a bankruptcy court to safeguard you as you repay off your debts, through a Chapter 13 (reorganization) bankruptcy. In this procedure, a creditor must receive permission from your bankruptcy court, prior to attempting to collect debts from you.
3. Understand how liquidation bankruptcies function
A liquidation bankruptcy, or Chapter 7 bankruptcy, requires you to forfeit nearly all of your personal possessions to a bankruptcy court. The court then uses the earnings to pay off your debts fully or partially. There is some good news and bad news for you and an attorney, such as a birmingham bankruptcy attorney, regarding this type of bankruptcy. The good news is that creditors cannot pester you for payments anymore. However, the bad news is that for a decade, the bankruptcy remains on your credit history. Potentially more bad news is that companies could refuse to grant you credit during that period.
4. Know about the 2005 Chapter 7 bankruptcy law
In 2005, the federal government passed an important new Chapter 7 law. If your income is at, or above, your state’s average income for the same-sized family, then your spending will be significantly limited. The court places these restrictions on items such as housing, utilities, and food. Furthermore, if your bankruptcy court believes that you possess more disposable income with which you could use to pay off your debt, then you will be transferred from a Chapter 7 repayment plan, to a Chapter 13 plan.
5. Understand how reorganization bankruptcies function
Reorganization bankruptcies include Chapter 11, 12, or 13 bankruptcies, with Chapter 13 being pertinent to the majority of individuals. You typically have 3-5 years to repay your debts via a proposal that a bankruptcy court must approve. As bankruptcy lawyer (such as a bankruptcy attorney tuscaloosa) will reveal, you consequently must pay off your individual debts fully or partially while you do not repay other debts. It is important to note that you are required to pay back particular debts, including:
• alimony
• child support
• criminal compensation
• DUI or DWI debts
• student loans (most)
• tax debts (most)
• traffic tickets
The court uses several means to ensure that you are able to pay off your debts. For instance, the court might garner part of your salary, and then one of the bankruptcy court’s trustees will make payments to your various creditors. After paying off your debts, your credits might even provide you with credit. However, keep in mind that for six years the bankruptcy will remain on your credit history.
6. Safeguard your credit report throughout your bankruptcy
If you decide to file for bankruptcy, it is important to protect your credit report during that period. Obtain the most up-to-date data before filing for bankruptcy. Contact each one of your creditors. Determine the total amount that you owe, and whether you should send payments directly to them, or to a collection agency. If your creditors press you about settling debts, simply inform them that you are planning to file for bankruptcy, and provide them with the contact information of your lawyer.
7. Never hesitate to find the right bankruptcy attorney
Yes, filing for bankruptcy can be tough. However, hiring the wrong attorney can make the process even more challenging. It is important that you never select an attorney from a bankruptcy attorney "factory." Additionally, you should never wait until the last moment to find a bankruptcy attorney. Find an attorney ASAP, such as a bankruptcy attorney birmingham, when filing for bankruptcy.
8. Find bankruptcy attorneys through referrals from legal insiders
Make sure to get referrals within the legal world, rather than from friends or relatives. This could include a personal attorney, professional groups, various types of bar associations, and legal aid societies.
9. Examine the credentials of potential bankruptcy attorneys
Learn if the American Bankruptcy Institute has certified the attorney. Also, learn if the attorney has had further training in the field of bankruptcy.
Deciding whether to file for bankruptcy can be one of the most challenging experiences in your entire life. It is important to consider many factors, including the various types of bankruptcies, and which bankruptcy lawyer to choose (such as a bankruptcy lawyer birmingham.) Choosing the right bankruptcy and the right bankruptcy lawyer, will ultimately provide you with a wealth of future options.
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