4Finances can be very unpredictable. When money is not managed properly by the individual, inability to pay debts and meet obligations to creditors will become problem. If this happens, some assets may have to be sold in order to repay what is lent. However, when you have done everything you could to meet the said obligations but there is still a huge amount of liabilities to pay, bankruptcy declaration is inevitable.
Note that, filing for a bankruptcy does not necessarily mean that it is the end of the world. There are various options that will help in getting the weight off your shoulders and this is through Chapter 6 Bankruptcy and Chapter 13 Bankruptcy.
Two Types of Bankruptcy Options
Chapter 7 Bankruptcy
Under this bankruptcy option, your liquid assets are used to repay your debt. Liquid assets are assets that are easily convertible to cash such as properties or checks issued to you. Note that there are also assets that cannot be used to repay creditors; these are called exempt assets. Also take note that there are laws that will dictate which assets are exempted and not exempted in the liquidation. As soon as non-exempt liquid assets are distributed to creditors (no matter how much everything amounted to), your debt will be discharged. That is, you are no longer liable to pay for any debt; creditors will no longer have the right to collect the debts from you.
In order for you to qualify for this option, a means test will be conducted to prove that your income is actually less than the median income for the size of your family. In the event that you are not eligible for this option, you can file for the Chapter 13 option.
Chapter 13 Bankruptcy
Under this option, you will be allowed to pay all or part of your liability in a specific repayment plan depending on the settlement terms with the creditor. When you file for a personal bankruptcy, you are actually required by the court to submit a repayment plan. After this, you can start to make payments to the court in your state; they will be the one who will give your payments to the creditors. This is actually a protocol even if your repayment plan is not approved yet.
A hearing will be conducted for the approval of your repayment plan. Note that creditors are allowed to object to the terms of your proposed plan; however, it is still up to the judge to decide. If your plan gets approved, you will continue paying the debt to the court and as soon as you have completed the plan, the debt will be discharged.