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When it comes to bankruptcy, the only thing that most people know about it is that it’s bad. However, even that is a misconception.
The reality is that bankruptcy isn’t the problem—the real issue is insurmountable debt. Bankruptcy is actually the lifeline by which someone may be able to escape a hopeless financial situation. So why do most people treat bankruptcy like it’s a bad word?
The negative connotation surrounding bankruptcy is often perpetuated by the parties who stand to lose money in the process: Creditors, banks and lenders. Depending on which type of bankruptcy you file for, some of your debts may be eligible for total forgiveness, and your creditors won’t be able to continue collection.
Critics of bankruptcy will say that your credit score will be irreparably damaged, but that’s not true, either. Although your credit score does fall after you file for bankruptcy, it is recoverable with time. If you’ve amassed substantial debt, there’s a good chance your credit score will improve in a fraction of the time it would take you to repay everything you owe.
Bottom line: For certain people, bankruptcy is a godsend. However, it’s important to note that there are many types of bankruptcy, each of which is ideal for a different scenario. Most individuals end up filing for Chapter 7 or Chapter 13 bankruptcy, but even those have significant differences. Fortunately, our dedicated bankruptcy attorneys are here to help.
If you’re drowning in debt with no hope for financial freedom, understand that you don’t have to live that way. As the number one bankruptcy filer in the State of New York, Jacoby & Jacoby has helped countless clients make a fresh start, and we can help you, too. Keep reading to learn everything you need to know about Chapter 7 and Chapter 13 bankruptcy, their differences, benefits and which is right for you.
Chapter 7: Liquidation Bankruptcy
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy because its goal is to discharge as much debt as possible. However, not everyone qualifies to file for Chapter 7; it is reserved for individuals with limited income and few assets with which to pay back their debts.
Think you may qualify? Here are a few things you should know:
- Eligibility requirements. In order to qualify for Chapter 7 bankruptcy, you’ll need to meet specific income requirements. More specifically, you’ll need to pass the means test, which compares your income to the median income of your state. If yours falls below the median, you’re more likely to qualify.
- Automatic stay. After you file for Chapter 7, an automatic stay is put into effect that prohibits creditors from continuing to pursue collection. This protects low-income individuals from creditor harassment, wage garnishments and similar collection efforts.
- Property exemptions. People who qualify for Chapter 7 may be allowed to keep certain properties that are protected from seizure to repay debts. Although it varies by state, New York typically allows you to keep your home, car, household goods and retirement accounts.
Chapter 7 bankruptcy offers substantial protection for certain individuals, but it also has drawbacks. Although certain types of property are protected from asset liquidation, many aren’t. It may require you to liquidate certain valuable assets in order to pay back your creditors. Additionally, Chapter 7 typically takes a greater toll on a debtor’s credit score than Chapter 13.
Chapter 13: Reorganization Bankruptcy
Chapter 13 bankruptcy is sometimes referred to as reorganization bankruptcy. That’s because, rather than liquidation, Chapter 13 focuses on restructuring an individual’s debts and providing them with a realistic repayment plan. This type of bankruptcy is often the most appropriate choice for people who have regular income. Here are a few key features:
- Structured repayment. When you file for Chapter 13, you’ll propose a repayment plan to the court. This plan will outline a strategy for repaying your debts in the next three to five years and is based on your disposable income. It allows filers to pay a portion of their debts with the understanding that remaining debts will be discharged at the end of that period.
- Greater asset protection. Unlike Chapter 7, Chapter 13 allows individuals to keep all of their assets, including non-exempt property, as long as you continue to make payments throughout the duration of your repayment plan.
- Debt discharge. Although the discharge process takes longer in Chapter 13 than in Chapter 7, certain debts are eligible for discharge after you’ve completed your repayment plan.
Like Chapter 7, Chapter 13 bankruptcy also triggers an automatic stay as soon as you file, protecting you from creditor actions, foreclosure and repossession.
Jacoby & Jacoby: Your Compassionate Legal Advocates
Filing for bankruptcy is daunting enough—you shouldn’t have to worry about the legal implications, too. If you’re considering filing for bankruptcy, it’s a good idea to seek out professional guidance. Our Long Island bankruptcy attorneys can help you navigate the complexities of your situation and pursue the best course of action.
Here are some of the ways our bankruptcy lawyers can help you prepare for the process ahead:
- Exploring your eligibility for various bankruptcies and analyzing the best fit for your specific financial situation and goals
- Developing a strategy to maximize debt relief while protecting your assets
- Preparing and filing all necessary legal documents, including financial records and your bankruptcy petition
- Negotiating with your creditors to help reach favorable agreements and reduce your overall debt liability
Perhaps most importantly, our attorneys will provide compassionate legal expertise while advocating for your best interests. If you’re ready to find relief from crushing debt and find a fresh financial start, getting started with Jacoby & Jacoby is as easy as reaching out to us online to schedule a free case evaluation.
