In the case of individuals, as opposed to businesses, there are two common forms of bankruptcy: Chapter 7 and Chapter 13.
Here is a brief description of how each type works:
This type of bankruptcy essentially liquidates your assets to pay your creditors. Some assets—typically including part of the equity in your home and automobile, personal items, clothing, tools needed for your employment, pensions, Social Security, and any other public benefits—are exempt, meaning you get to keep them.
But your remaining, non-exempt assets will be sold off by a trustee appointed by the bankruptcy court, and the proceeds will then be distributed to your creditors. Non-exempt assets may include property (other than your primary residence), recreational vehicles, boats, a second car or truck, collectibles or other valuable items, bank accounts, and investment accounts.
At the end of the process, most of your debts will be discharged, and you will no longer be under any obligation to repay them. However, certain debts, like student loans, child support, and taxes, cannot be discharged.
Chapter 7 is generally chosen by individuals with lower income and few assets. Your eligibility for it is also subject to a means test.
In this type of bankruptcy, you are allowed to retain your assets, but must agree to repay your debts over a specified period of three to five years. The trustee collects your payments and distributes them to creditors.
Chapter 13 bankruptcy is normally chosen by people who want to keep their non-exempt property intact or buy time against foreclosures or property seizures.
In any of these cases, at Gomez Law, we can guide you to effectively address your financial situation.