Some confusion exists about what bankruptcy entails. While most people realize that bankruptcy presents a solution for persons struggling with crippling debt, they might not know how the process works or who is eligible. In general, debtors may find filing for bankruptcy in a Florida federal court provides them with a path to a fresh financial start if they follow the process’s terms.
Protection under bankruptcy laws
Bankruptcy becomes a possible option for debtors unable to repay their obligations. The debt situation has to be more than inconvenient; the debtor’s obligations must be more than available assets or what their income could cover. The debtor may face threats of lawsuits and collection actions and has no other option but to seek assistance in federal court.
Once someone files for bankruptcy, all collection actions stop. The court and a bankruptcy trustee oversee the repayment of certain debts while discharging some obligations. The specifics depend on the category of bankruptcy the debtor files.
Chapter 7 and Chapter 13 bankruptcy
Not all bankruptcy categories are identical, as there are different chapters of personal and business bankruptcy. Chapter 7 is the one also known as liquidation bankruptcy. Those who pass the means test and establish their significant debt situation would file for Chapter 7 and liquidate specific assets to pay particular creditors. Some unsecured debt faces a discharge, meaning the debtor no longer has to pay the creditors.
Chapter 13 bankruptcy involves making a three to five-year payment plan to pay a portion of one’s debts. Chapter 13 is often referred to as wage-earner bankruptcy because those who file for Chapter 13 have debts that exceed assets, but they earn enough to cover a reasonable payment plan. And yes, some debts may face a discharge after the court approves the Chapter 13 payment plan.