The novel coronavirus pandemic has brought with it new difficulties and hard decisions for each of us. For many, this has meant making hard decisions regarding what necessities we can and can’t do without. However, if you are feeling overwhelmed by debts, filing for bankruptcy protection may be the best path forward.
The biggest misconception in bankruptcy law is the connotation that someone who files bankruptcy is a failure. Bankruptcy is enshrined in our constitution to provide any citizen relief most often from circumstances beyond their control.
What is Bankruptcy?
Bankruptcy is a legal procedure that can be initiated by an individual or business seeking to have their debts discharged or reorganized by the courts because they cannot pay them. The most commonly filed types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 bankruptcy is filed by individuals wishing to drop their debt without losing assets (excluding any non-exempt equity the filer may hold). Chapter 11 bankruptcy, on the other hand, is normally filed by large and small businesses and allows debtors to restructure their debt to be repaid without interrupting their business’ activity. Chapter 13, finally, is filed by individuals to create a repayment plan while retaining their home and car.
Terms to Know
To gain a better understanding of the bankruptcy filing process, examine the terms below.
- Bankruptcy Petition — This is the document that is filed with the U.S. Bankruptcy Court to initiate a bankruptcy proceeding. This document usually includes the debtor’s assets, debts, and any other liabilities.
- Insolvent — Someone who is insolvent is unable to pay their debts as they are due.
- Discharge — A court may discharge or release a debtor from their liability to pay a debt.
Filing for Bankruptcy
In order to qualify for bankruptcy protection, there are different requirements that debtors must meet. Chapter 7 and Chapter 13 bankruptcy are the most common types filed by individual debtors, while Chapter 11 is more often reserved for businesses. Below you can learn more about how to qualify for these protections as well as how long the bankruptcy process is likely to take in each case.
Chapter 7 Filing
Chapter 7 is by far the most common type of bankruptcy filing, and around 94 percent of Chapter 7 filings result in filers having their debts discharged. In order to qualify, debtors must pass a “means test” which examines records of income, expenses, and debt. Income limits vary by state, as do debt requirements.
You may qualify if your debts:
- Are more than half your annual income.
- Are paying off your debt would take five years.
- Negatively affect other aspects of your life.
You may also qualify if you have little disposable income, or your monthly income falls below the median level for your state. Generally, the process takes three to four months.
Chapter 11 Filing
Chapter 11 filing allows businesses to restructure their debt without halting operations. Usually, Chapter 11 is used by large businesses with large sums of money, but it can sometimes be used in small business cases and by individuals as well. Sometimes, a business’s creditors will petition for that business to file for Chapter 11 protection. Once filed, the debtor has four months to come up with a repayment plan.
Generally, only businesses or individuals with too much debt to qualify for Chapter 13 file for Chapter 11. This is why celebrities and professional athletes file for Chapter 11 protections rather than Chapter 13. Usually, assets such as homes and cars are put up for sale during this process. Chapter 11 filing also damages filers’ credit ratings significantly.
Chapter 13 Filing
Chapter 13 filing allows debtors to repay their debts without submitting to asset liquidation, the process followed in Chapter 7 filing. Chapter 13 filing and repayment can take up to five years. This allows debtors to hold onto their homes while paying off significant debt.
To qualify for Chapter 13 protections, filers must have no more than $394,725 in unsecured debt such as credit card debt, and they may also have no more than $1,184,200 in secured debts such as mortgages and car loans.
Filing Bankruptcy During COVID-19
There are a few parts of the bankruptcy process that may be affected by the pandemic and its associated lockdowns. The filing process is likely to take longer than usual, and there may be a large influx of individuals and businesses filing. With this in mind, if you are considering filing for bankruptcy, it’s a good idea to start the process as soon as possible.
Whether in the midst of a pandemic or not, it is extremely important to be honest with your bankruptcy lawyer regarding any assets or debts you have, as withholding this information during a bankruptcy proceeding is a federal crime.
The Law Offices of Phillippe & Associates: Bankruptcy Attorneys for Brownsville, Texas
Filing for bankruptcy is a tough decision a person can make that can ultimately save an individual from financial ruin. Rather than giving up, bankruptcy is a way to get a fresh start for yourself or your business.
If you are looking for a bankruptcy lawyer in Texas, look no further than the Law Offices of Phillippe & Associates. We have helped many file for Chapters 7, 11, and 13 protections and are dedicated to helping you realize your options during this uncertain time.