You’ve undoubtedly heard of bankruptcy, and you may have wondered if it could be a solution for your current financial woes. But if you are like many consumers, you don’t have any actual first-hand knowledge about the bankruptcy process. In fact, you only know what you have heard through the grapevine.

We are happy to provide these bankruptcy FAQs to help you understand bankruptcy and decide if it is the right course of action for you. 

Of course, the answer given below are broad and meant to introduce you to the concept of bankruptcy. Should this discussion result in you having further questions, call an experienced Sarasota bankruptcy attorney to discuss your situation. Let’s start with the basics. 

* What is bankruptcy? Bankruptcy is a legal procedure designed as a solution for those unable to pay their debts. An individual initiates the process by filing a bankruptcy petition with the federal bankruptcy court. 

* What is the most common form of bankruptcy? The three most recognized bankruptcy proceedings are Chapters 7, 11, and 13. The most common for individuals is Chapter 7. A Chapter 7 bankruptcy is filed when the individual who owes money (the “debtor”) may liquidate their assets to off pay creditors, agree to a settlement, or discharge debts. Chapter 13 bankruptcies are also quite common for working individuals, while Chapter 11 proceedings are typically reserved for businesses and organizations. 

* What is a discharge of debt? A debt discharge is the cancellation of a debtor’s remaining obligations after the Chapter 7 proceeding is complete. 

* How is Chapter 13 different? A Chapter 13 bankruptcy develops a repayment plan for the individual filer. The repayment plan consists of regular installments paid over 3 to 5 years to those creditors owed money. Chapter 13 typically does not require liquidation of assets and is designed for those with a steady income source. 

* Will bankruptcy eliminate all debt? Both Chapter 7 and Chapter 13 proceedings will discharge debt at the end of the process. The Chapter 7 debt is discharged at the end of the proceeding, and the Chapter 13 debt is discharged after successfully completing the repayment plan. The difference is what types of debt can be discharged, as not every obligation is eligible for discharge.

In both Chapter 7 and Chapter 13 proceedings, debts such as personal loans, medical bills, and credit card debt may be discharged. However, child support payments, alimony, and legal fines are not eligible for discharge. 

* Are there consequences to filing for bankruptcy? As you might expect, both positive and negative consequences are associated with filing bankruptcy. While Chapter 7 bankruptcy is relatively quick and protects against creditor harassment, it also results in a negative mark on your credit report that can last for up to a decade.

Chapter 13 allows the fling party to keep their property, but most of their disposable income during the repayment period (typically 3 to 5 years) goes to paying off their creditors. Filing either Chapter 7 or Chapter 13 will make it challenging to obtain a mortgage for many years. 

* Can bankruptcy stop the harassment from creditors? Debt collectors often employ abuse, coercion, and intimidation to force individuals to pay back their debts. Filing for bankruptcy puts an end to harassment, including telephone calls, mail, and email. The filing triggers an automatic stay, during which creditors are required to cease all collection efforts. 

* Will my property be repossessed? When creditors loan money, they often take a security interest in the debtor’s assets. A typical example of this is a mortgage taken on a home purchase. If the mortgage is not paid according to the contract terms, the creditor can foreclose on the home. These types of loans may include cars or even TV sets and appliances. To avoid creditor repossession, a debtor can attempt to negotiate with their creditors for lower payments or ask for the life of the loan to be extended.

If they must file bankruptcy, Chapter 13 offers the best chance at keeping one’s possessions. Chapter 7 typically involves liquidating most assets to pay off creditors, but exceptions can be made.

* Should I hire an attorney? It is always best to seek professional help with legal matters. A bankruptcy attorney can help you determine if you are eligible for bankruptcy and if it makes sense as a solution to your financial issues. An experienced attorney will also be able to guide you towards the appropriate type of bankruptcy given your situation, guaranteeing the best possible financial outcome. 

 If you live in the Sarasota area and are considering bankruptcy, call the offices of attorney Richard V. Ellis. He and his team have helped hundreds of people to navigate the bankruptcy process, discharge their debts and get on with their lives. Call today for more information.