Bankruptcy can be a good option for getting out of debt. Nevertheless, there are many aspects that need to be considered and that is best done with the help of a lawyer. If you are planning to file bankruptcy, before you embark upon this journey you need to have a sound understanding of the process. It is not necessary that you should have knowledge similar to a bankruptcy attorney but the concept should be clear. And you should know what you are heading for and what you are attempting at.
Bankruptcy is a federal court proceeding and by filing bankruptcy you get an opportunity to revamp your finances and attain financial stability. The most common types of bankruptcy filed include Chapter 7 and Chapter 13 bankruptcy.
In Chapter 7 bankruptcy also known as “liquidation bankruptcy”, your assets are liquidated so that your creditors get their money back. You should be aware of the exempt and non-exempt assets.
Previously, filing for bankruptcy was easy and you could declare yourself bankrupt at any point of time. The fed introduced the new federal bankruptcy laws in 2005. Since then bankruptcy filings have become tougher.
If you are planning to file Chapter 7 bankruptcy, you have to undergo a Means Test. In Means test, your monthly income is calculated and compared to the median income of a household in the state you are living. In case your monthly income is less than the median income, you are eligible for Chapter 7 bankruptcy or else your lawyer asks you to file Chapter 13 bankruptcy.
In Chapter 13 bankruptcy, you are not required to give away your assets for liquidation. Instead you are required to pay as per a new repayment plan. Your income should be good enough for you to make payments every month. You manage to get out of debt within 3 to 5 years.
These are the some of the basics of bankruptcy that it is important to develop awareness on. There are many websites offering vital information related to bankruptcy. It is your hard earned money and you should know how to reorganize your finances in a balanced and appropriate manner.