Historically, personal bankruptcy carried a stigma of failure and giving up. Over the last 10 years that perception has changed. When the real estate market melted down in 2008, many people got caught with their pants down facing foreclosure with nowhere else to turn but to file for bankruptcy. In the past, the typical bankruptcy filer was low income and was perceived as a loser for not paying their bills. In 2011, , seeing many Americans with six-figure incomes driving their BMWs and living in a mini mansion in suburbia. Sure, these people did what every other American did over the last 10 years and over extended themselves. Most Americans thought there was no end to the rising real estate market and continued to leverage their property to get more stuff. When everything fell, all the equity was gone and all there was left was a bunch of unpayable bills.
The beautiful thing about filing bankruptcy is it’s not a one-size-fits-all legal action. There are different chapters that suit different people’s needs. For instance, a Chapter 7 bankruptcy is top notch for the individual that has a large amount of unsecured debt. A Chapter 7 will wipe out credit card debt, medical bills, payday loans, while stopping all collection activities, foreclosure and wage garnishments. There are some limitations to Chapter 7 bankruptcy as the debtor is required to qualify at taking a means test. Basically, the means test takes the average income of the debtor and compares it against the median income chart for their state. This could be complicated and is best to be tackled with the help of a bankruptcy attorney. For the six-figure debtor, there is Chapter 13 bankruptcy. A Chapter 13 really shows its power in protecting real estate. Filing a Chapter 13 bankruptcy allows the debtor along with their bankruptcy attorney to come up with a feasible repayment plan that will last 3 to 5 years. The debtor will be able to keep their property and negotiate something with the creditors to get caught up on back payments while continuing to pay the current payments. Since debts are paid by priority, secured debts always get paid first and the unsecured debts get what’s left over. A Chapter 13 bankruptcy is also very flexible allowing the debtor to have their bankruptcy attorney make changes if necessary during the repayment plan.
As you can see both of these chapters of personal bankruptcy offer something for just about everyone. Filing bankruptcy can be complex and should be discussed with a bankruptcy attorney to get the maximum benefit.