When is one considered “insolvent”?
In today’s economic conditions, many people have lost their jobs, homes, and health coverage. Even the most diligent bill payers can find themselves in financial jeopardy. When you are unable to pay your debts as they come due, you are considered “insolvent”. Creditors may begin proceedings to foreclose or repossess property or seek to garnish your wages. Filing a bankruptcy case can help you get a fresh financial start, stopping bill collectors, and getting you back on a more secure financial path.
If you are considering filing for bankruptcy protection, you should learn about your options. For most people, personal bankruptcies are filed under either Chapter 7 (liquidation) or Chapter 13 (payment plan). A Chapter 7 is the most common type of bankruptcy chapter for personal debts. In a Chapter 7 case, a trustee is appointed to liquidate your non-exempt assets to pay your creditors. If you receive a Chapter 7 discharge, you will get rid of most unsecured consumer debts. If you have secured debt (a debt secured by a lien on your personal or real property), such debts may “pass through” your Chapter 7 case, and secured creditors may still seek to repossess or foreclose on those debts after your bankruptcy. You must also financially qualify to receive a chapter 7 discharge. Bankruptcy courts use a “means test.” The Chapter 7 means test is a complex formula based on your pre-bankruptcy assets, income, which is applied to determine whether or not you have enough money or non exempt assets available to make some payment to your creditors.
A Chapter 13 bankruptcy is different from a Chapter 7 is a lot of ways. Like a chapter 7, your will also have a trustee appointed. However, a Chapter 13 trustee does not sell your property to pay your debts. A Chapter 13 bankruptcy trustee uses your wages/income to pay back your creditors pursuant to a plan (which must be confirmed by a bankruptcy judge) over a period of 3 to 5 years. In your plan, you can propose terms for repayment of your debts, paying substantially less than your actual debt, depending on your income, assets, and the kind of debts being discharged. If you provide for payment of debts on your home or other secured debts, a Chapter 13 can help you prevent foreclosures and repossessions, allowing you to get your secured debt payments current.
A Chapter 11 bankruptcy is also an option for personal bankruptcy. In a Chapter 11, you are a “debtor in possession” and essentially act as your own trustee. Unlike a Chapter 13 case, there are no debt limits to file a Chapter 11 case. If you have income generating real estate or personal property that generates money, you potentially could have the property removed from you by your creditors in a receivership. Receiverships are generally done without your consent and places a receiver hired by your creditor in control of your property. But if you file a Chapter 11 bankruptcy, you would be in charge of your assets. You can propose a Chapter 11 plan for repayment of your debts; however, creditors have the right to vote on your plan or propose their own plan for payment of your debts too.
Which Chapter is best for you? Contact a knowledgeable bankruptcy expert to discuss your options and get your financial fresh start today.