The objective of bankruptcy is to provide debtors with relief from their creditors. A voluntary petition is filed to initiate the bankruptcy procedure. The bankruptcy procedure consists of registering for bankruptcy status and eventual debt discharge. After declaring bankruptcy, there is typically a delay period before debts are discharged. During this interim period, the court could order an evaluation of the household's or entity's financial capacity. The court may also require completion of financial education classes. This may be necessary to reduce the likelihood of a future bankruptcy.
The United States Bankruptcy Code recognizes two distinct categories of personal bankruptcy. The following is a brief explanation of each form of bankruptcy:
Chapter 7 bankruptcy is the most prevalent form in the United States. A person petitioning for Chapter 7 bankruptcy must pass the """"means test for eligibility."""" Chapter 7 bankruptcy eligibility permits the creditor to repossess any property pledged as collateral for debts that will be discharged in the bankruptcy. Additionally, the bankruptcy trustee may liquidate non-exempt assets and distribute the proceeds to unsecured creditors. Typically, exempt property includes (1) clothing and (2) household products. Other assets such as (1) social security payments, (2) unemployment compensation, (3) an older, low-value automobile, (4) work-related equipment, and (5) books are also excluded from liquidation (state laws may vary). The courts may not discharge certain debts. These include federal debt, tax judgments, student loans, and spousal and child support. Each state determines the maximum amount of property that can be exempted in a bankruptcy. A Chapter 7 bankruptcy can only be filed once every eight years.
Chapter 13 bankruptcy enables the debtor to keep all of their property and assets, but they must agree to a payment plan (based on their income) to repay creditors. The repayment amount is determined by the debtor's income, expenses, property value, and discharged debt. The repayment plans are typically for 3 to 5 years, but the debtor may be able to pay them off earlier if they so choose. Chapter 13 bankruptcy requires evidence of regular income and has income limits. In this form of bankruptcy, payments are made to a trustee. The trustee is liable for making payments to creditors. In Chapter 13 bankruptcy, unsecured debt and medical expenses are not repaid.
In Chapter 7 bankruptcy, the debtor may lose property and assets, whereas Chapter 13 bankruptcy permits the debtor to retain all property and assets. Chapter 7 bankruptcy has no repayment obligation, while Chapter 13 bankruptcy has a 3 to 5 year repayment obligation, depending on a number of factors. Which bankruptcy option, Chapter 7 or Chapter 13, is superior? It depends on a variety of factors, such as your occupation, income, health, and age. It is always in your best interest to seek bankruptcy advice from a knowledgeable attorney.""
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