Under Article 1 of the U.S. Constitution, Congress was granted the legal right to establish bankruptcy courts and enact corresponding law. In 2018 alone, over 730,000 personal bankruptcies were filed. Debtors who cannot pay their owed sum can file for insolvency. An attorney usually goes before a judge, who can either erase the whole debt or establish a payment plan. There are two common types of bankruptcy.
Chapter 13
Chapter 13 reorganizes debt. The court requires debtors to repay their owed sum over a period of three to five years. The sum is paid in monthly installments to a court-appointed trustee, an independent contractor not employed by the court. The court enforces a specific budget the debtor must follow as a way to ensure secure payment. This may seem more daunting, but a Chapter 13 attorney West Palm Beach FL can discuss the benefits of filing for Chapter 13. Unlike in Chapter 7, the debtor can keep their assets and don’t risk facing foreclosure, since their home would become a liquid asset. Creditors cannot collect debt from the debtor’s paycheck under Chapter 13.
Chapter 7
Otherwise known as liquidation bankruptcy, Chapter 7 erases most of the owed debt. Is is also the most common type of bankruptcy filed. The court only grants Chapter 7 to individuals who don’t have enough money to pay their full debt. However, they must compensate by giving away their liquid assets, which could include cash in a checking or savings account. These assets are turned over to the court and are interpreted as partial repayment. The former debtor must meet with creditors to discuss their finances, which is meant to ensure an attempt to regain lost financial stability.
Bankruptcy is not a pleasant topic to discuss. However, this type of insolvency is a reality for several people. Debtors can qualify for a repayment plan overseen by the court, allowing them to pay a fixed amount monthly to a trustee. Another alternative liquidates assets, making them potentially transferable to other parties as a form of repayment.
