Bankruptcy is a type of legal protection afforded people who are unable to pay their debts. There are two types of bankruptcy filing: Chapter 7 and Chapter 13. Chapter 13, unlike Chapter 7, reorganizes your debts into a payment plan that you can sustainably pay. After a term of years (usually five years), you either pay off your debts in their entirety or the rest is forgiven. The purpose of Chapter 13 is to reorganize your assets and liabilities, to allow you to get out from under your debts.
Chapter 13 is designed for debtors who have sufficient income and means to repay their debts. Chapter 13 is for debtors who can pay off their debts, given some support and reorganization plans. Chapter 13 luckily discourages creditors from collecting and selling the debtor’s property to settle their debts. Chapter 13 allows you to repay your debts. Therefore, the creditors are discouraged from selling your assets.
But, the value of your non-exempt property determines the amount of you will have to repay and the schedule. The non-exempt property is any property that isn’t listed in federal or state law (each state individually lists exempt property). Some common examples of exempt property are:
- Personal and household items, like clothing and furniture;
- Family homes (sometimes called homesteads); and
- Automobiles (at least, primary transportation vehicles).
If you are considering filing for bankruptcy, you may want to speak to a lawyer. Chapter 7 is the most tempting because it results in the complete forgiveness of your debts. But, Chapter 7 is not available to everyone, an attorney can help you determine if you qualify for Chapter 7 and if you do not, craft a repayment plan. Filing for Chapter 13 is substantially more complicated than Chapter 7, so you may want the assistance of an attorney. A lawyer can go over which of your properties are exempt and how to determine your repayment plan.