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Bankruptcy: What to Ask and Which Chapter to File

Bankruptcy

Bankruptcy may become an unfortunate necessity. If your debts have overwhelmed your finances, the time is right to seek legal help and file for bankruptcy. However, you may not realize different chapters of bankruptcy exist. The chapter you file for will have implications for the immediate future of your finances.

Find out about the different chapters of bankruptcy and what questions you should ask when consulting a lawyer.

Chapter 7: Removal of Debt

The purpose of Chapter 7 bankruptcy is to give an individual a fresh start that is free from debt. With this chapter, the filing party's non-exempt assets are liquidated - or, other words, sold. A trustee distributes the funds from this liquidation to creditors, and the court discharges the rest of the debt. Hence, the debtor gets a fresh start with no repayment plan in place.

Filing parties don't necessarily have the choice to file Chapter 7 bankruptcy. First, the courts look at their monthly income. Said income must be less than the state median for the same size of household. Secondly, the party filing for bankruptcy must pass a means test, which is used to determine the person's ability to make payments to creditors.

If you don't qualify for Chapter 7 bankruptcy, often your petition is converted to a Chapter 13 petition.

Chapter 13: Individual Repayment Plan

The purpose of a Chapter 13 bankruptcy is to give individuals a chance to pay back some of their debt without having to liquidate their assets. With this chapter, the filing party must file a repayment plan with the courts. Then begins a negotiation process between the creditors and filing party. Once the two parties have settled on a repayment plan, the court approves it.

Chapter 13 bankruptcy is for individuals with a regular income. They, along with a trustee, come up with a repayment plan that works within their income. Chapter 13 is necessary when their income exceeds the state median and they don't pass the means test, meaning they have the ability to pay back some of the debt.

Chapter 13 bankruptcy repayment plans typically last three to five years. Upon completion of the plan, the debts are discharged. This chapter also works well for individuals who want to keep their car and home but may be behind in payments. Chapter 13 also helps individuals who have back taxes or domestic support payments, neither of which can be discharged.

Questions to Ask a Bankruptcy Lawyer

Filing for bankruptcy is a complicated business. You'll have to gather many documents to show the level of your debt and what assets you have. Hiring a lawyer will help you navigate the legal part of the process.

Naturally, one of the first questions you'll want to ask a lawyer is which chapter you should file. Most law offices will have a comprehensive bankruptcy questionnaire. You should also come with pay stubs and documentation of any other income, such as investments. You'll also want to ask what property you will lose.

While speaking with lawyers, you'll also want to get a feel for how they'll handle the process. Find out how they prepare the bankruptcy petition. You'll need to know if anyone from their offices will accompany you to the meeting with your creditors. Additionally, make sure to ask when the courts will file the paperwork and when your case will be over.

Finally, you'll need to discuss the costs of filing for bankruptcy beyond lost assets. Naturally, you'll want to ask the law firm's fees associated with their services and what exactly those services cover. You may want to ask what additional fees they see coming up in case of complications.

Filing for bankruptcy can give you a fresh start, whether you negotiate a repayment plan or liquate your assets to repay your debt. If you've considered filing for bankruptcy, consult with Frances H. Hollinger Attorney at Law.

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