Bankruptcy filings in the U.S. have declined in 2012, which is great news for individuals, families, businesses, and especially lenders. However, there are still thousands of individuals and families in the Midwest who are living in dire financial straits. Filing for Chapter 7 or Chapter 13 bankruptcy is oftentimes the most efficient option when dealing with crushing financial debt.
Filing for bankruptcy should be seen as an opportunity rather than a final effort. With the proper counsel and long-term strategy, those that file for bankruptcy can emerge from the process with less stress and more options for getting back on track financially.
If you are looking to file for bankruptcy, you may be confused by the different types available. For the most part, an individual or small business will look to file for Chapter 7 or Chapter 13. In fact, the ratio of personal bankruptcy filings in Kentucky during the first six months of 2012 was 74 % for Chapter 7 and 26% for Chapter 13. In Ohio, the ratio was 77% for Chapter 7 and 23% for Chapter 13.
Before deciding on pursuing one chapter of bankruptcy over another, it’s important to learn about the differences, including the pros and cons.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy in Cincinnati is one of the most common types of bankruptcy. It is also known as “Liquidation” and, as this name implies, it involves the selling of a debtor’s assets in order to repay creditors. This type of bankruptcy is not available to all individuals or businesses as they must past an eligibility test. This comes in the form of a “means test,” which compares a debtor’s household income to the median income of a similarly sized household in the state.
The debtor must still complete a credit-counseling course prior to filing for bankruptcy. Even then, debts such as student loans, taxes, and child support payments may not be dischargeable. With secured debts, such as auto loans or home mortgages, the creditor may still retain a lien on the asset unless the particular debt is discharged with a reaffirmation agreement.
After the terms of the bankruptcy have been fulfilled and the debts are officially discharged by the court, the individual or business is under no obligation to repay the specified debts. With the proper use of financial planning, individuals and businesses can rebuild their credit without the overwhelming burden of unmanageable debt.
Chapter 13 Bankruptcy
This type of bankruptcy is also known as the “Wage Earner’s plan.” As this name implies, it can be a good option for individuals who are presently employed and have enough stability to work with a repayment plan. Under Chapter 13 bankruptcy, the debtor is still protected from foreclosure, wage garnishment, and other consequences, but must complete a credit reorganization plan within three to five years.
Individuals with a reliable income, but considerable debt may be eligible to file under this chapter. However, the individual must have no more than $360,470 in unsecured debt and less than $1,081,400 in secured debt. The debtor must also complete court-approved credit counseling prior to filing, during which a repayment plan is developed.
A bankruptcy trustee serves as an intermediary between the debtor and the creditors, ensuring that the repayment is completed in accordance to the terms laid out to all parties. Unlike with liquidation, the creditors receive substantially more repayment of the debts owed. These creditors are repaid in order of priority, with secured debts repaid before unsecured debts. After the repayment is completed according to the plan agreed upon, any remaining unsecured debt is discharged.
Everyone’s financial situation is different, even though the mountain of monthly payments may be the same. There are so many factors that can affect one’s ability to deal with debt, both in the short-term and long-term. Current employment, marital status, property, financial assets, and income are but a few of the factors that can affect your decision to file for bankruptcy.
An initial consultation with a bankruptcy attorney in your area, whether you live in Ohio or Kentucky, is generally free of charge. An experienced bankruptcy attorney can examine your financial situation and help you determine what your financial options are. Bankruptcy may do more harm than good in some situations. Ethical and honest attorneys will present this information to you, based strictly on your best short-term and long-term interests.
Please remember that inaction is not a proper solution when dealing with severe debt. Even if bankruptcy is not the most efficient option, making a good faith attempt to address the debt through a realistic financial plan is critical.