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What you need to know about personal bankruptcy

On Behalf of | Mar 10, 2022 | Personal Bankruptcy

Filing for bankruptcy is an effective option for some people who need to restructure their personal finances. The federal government understands that financial issues arise that individuals cannot control, which in turn can impact their household budget and personal finances. It is intended as a fresh start, and that is exactly what can happen with a successful petition. Bankruptcy is by no means a simple process, and creditors are allowed an opportunity to contest the filing when a prior agreement cannot be reached regarding any outstanding debt. As a matter of fact, many bankruptcies are filed based on creditor reluctance to renegotiate.

Which chapter can apply

The first step in filing for bankruptcy is determining which chapter can be used. Chapter 7 is typically for individuals or married couples who do not have a steady source of income. Those who have enough income to repay in a structured payment plan will be allowed Chapter 13 if the personal bankruptcy petition is accepted by the court. This is determined by a means test prior to the filing.

What each chapter means

A Chapter 7 bankruptcy petition is effectively a request for a discharge of eligible unsecured debt. Non-exempt assets can be seized by the trustee and sold for payment to outstanding creditors in some cases. A Chapter 13 petition will include a repayment plan of typically five years that must also be supported by financial documentation indicating the petitioner has the financial capacity to complete the program and emerge out of bankruptcy with a fresh start on their personal financial status and credit rating.

Those who file a Chapter 7 petition often experience serious difficulties reestablishing their credit rating, but many times petitioners who utilize a Chapter 13 repayment plan will have their credit rating in tact well enough to rebuild in short order following plan completion.