Everyone goes through tough times, but it seems some people get hit a little bit harder. Misfortune after misfortune can make it hard to keep their head above water.
For these people, bankruptcy may seem like the best option, but knowing which type of bankruptcy to file is essential.
Liquidation versus reorganization
Chapter 7 is often referred to as the “liquidation bankruptcy”. This type of bankruptcy is more suitable for people with limited income who can’t afford to repay their debts. To qualify for Chapter 7, you must pass a means test comparing your income to the median income of Florida households for however many people you have in your household. If your income falls below the median, you’re eligible to file.
Florida is very generous with what you can exempt from bankruptcy liquidation. If you have owned your home for at least 1,215 days, then it’s fully protected from the proceedings as long as you meet specific requirements. You can also protect your retirement accounts, Social Security benefits and a vehicle, depending on its value.
Chapter 13, known as “reorganization bankruptcy,” is designed for people with a steady income who just need breathing room to catch up on missed payments. It doesn’t eliminate all of your debt. Instead, Chapter 13 lets you restructure and pay your debts over an extended period, typically three to five years. You also aren’t required to sell your non-exempt property to pay off the creditors.
Filing for either Chapter 7 or Chapter 13 puts an automatic stay into effect, effectively stopping creditors from attempting to collect debt.
If you are considering bankruptcy, you will need to speak with someone who can evaluate your situation, discuss your options and guide you through the bankruptcy process.
