Serious debt problems are stressful enough, without the additional worry of trying to wrap your head around all of the rules and legal speak relating to procedures like filing for bankruptcy. Here we take a look at some of the most common terms you’ll encounter if you are researching bankruptcy as an option, or preparing to file.
Under Title 11 of the United States Code, there are several different forms of bankruptcy people and businesses can file for. Chapter 7 is the most commonly used in personal bankruptcy cases. It is a form of bankruptcy that is resolved very quickly, with no ongoing monthly payments to creditors. Chapter 7 is available to people who meet its terms, which include having a low income compared not only with their debt, but with other families in their area.
The second most common type of bankruptcy in America is chapter 13. This is also a form of personal bankruptcy, however unlike chapter 7 it does involve ongoing payment plans to creditors, over a period that will last between three and five years. Some people who are not eligible for chapter 7 can still file for chapter 13.
Means testing is the process used to determine whether you really can’t afford to pay your debts. It looks at your income from the past six months and analyses this against the median in your area (that’s the middle average in the range, so the halfway point financially between the poorest and richest family). It also takes into account the amount you have to pay off each month for your debts. Passing the means test is one of the main obstacles to filing under chapter 7, and there is also some means testing involved with chapter 13.
The technical definition of liquid assets is the things you own that can easily be converted into actual money. This will include things like cash, savings, and any stocks and shares you might own. Liquid assets are what are used to repay some portion of what you owe your creditors.
Exempt Liquid Assets
Some liquid assets are exempt from being reclaimed by the court as part of bankruptcy proceedings. The laws on what is considered exempt vary regionally, so you will need to find out from your chapter 13 or chapter 7 attorney what you may be allowed to keep.
Discharge is the term used to refer to the “end game” of bankruptcy procedures – the point where you are no longer obliged to repay any creditors. With chapter 7, your debts are usually discharged within a few weeks or months, because repayments made from your assets are all done at once. With chapter 13, you will not have your debts discharged until the end of the agreed payment plan, and you will be under special financial restrictions until that point. This will be a minimum of three to a maximum of five years after you file.
Once your debts are discharged, the creditors are no longer allowed to pursue you for payments, and neither are any third party debt collection agencies with regard to the debts covered by your bankruptcy case.
Today’s guest author, Monica Smith, is a financial consultant at the GoldBach Law group, a law firm that specializes in chapter 13 bankruptcy attorneys in California. She is an avid reader and likes reading novels in her spare time.