Any bankruptcy filing is intended to relieve debt issues, be it for an individual, a household or a business. The two prevailing types of consumer bankruptcy are Chapter 7 and Chapter 13, both of which are used by individuals and families here in Kentucky and elsewhere in the nation to handle debt that has become insurmountable. It is important to understand the distinctions between the two in order to determine which route is best for an individual's situation.
A Chapter 7 bankruptcy, commonly referred to as a liquidation bankruptcy, involves selling nonexempt property to pay down existing debts. A bankruptcy of this type takes three to four months to complete and stays on a consumer's credit score for up to 10 years. Qualifying for a Chapter 7 bankruptcy involves passing a "means test" that determines where an individual's finances rank as compared to the median income in the filer's state. If an individual comes up below that median, the individual typically qualifies for Chapter 7.
A Chapter 13 bankruptcy, on the other hand, is considered a debt reorganization bankruptcy. This means the plan is to set up a repayment schedule to pay off existing debts. A monthly payment is made to a bankruptcy trustee, who distributes those payments to specified creditors. Those whose income makes it difficult or impossible to file for Chapter 7 often elect to go with a Chapter 13 plan instead.
The intricacies of bankruptcy law and debt can be daunting to say the least. Whether a Kentucky resident chooses to go with Chapter 7 or Chapter 13 will be dependent upon his or her individual situation. This is why the support of a dedicated bankruptcy attorney can be particularly helpful in planning a bankruptcy filing. An attorney can help determine which route is best for an individual or family's situation, and also help to make sense of the often complicated paperwork involved in a bankruptcy filing.