Bankruptcy protects debtors from creditors by giving debtors a “fresh start.”  The two most common forms of bankruptcy for individuals in the United States are liquidation bankruptcy (Chapter 7) and debt adjustment for people with a regular income (Chapter 13).

The debtor is typically granted a “discharge” from unpaid debts.  A discharge is court order that states that the debtor does not have to pay most debts.  Some debts cannot be discharged, such as most taxes, child support, alimony, most student loans, court fines, personal injury caused by drunk driving or while under the influence of drugs.

Chapter 7 is the most common form of bankruptcy in the United States.  Debtors usually get almost immediate relief from debt after demonstrating that they meet certain financial criteria.  Many are pleasantly surprised to learn that an individual is allowed to earn a reasonable income and to keep certain “exempt property,” including a personal residence, an automobile, and other property.   Persons filing a chapter 7 bankruptcy petition can sometimes receive a discharge in a little as 3 to 4 months.

Chapter 13 is a debt adjustment for people with regular income, providing a financial reorganization supervised by the bankruptcy court.   The usual goal of a Chapter 13 bankruptcy is to provide a debtor with financial rehabilitation provided they fulfill a court-approved plan. This is in contrast to a Chapter 7 bankruptcy that usually offers immediate, complete relief of many debts.

The disadvantage of filing for personal bankruptcy is that it appears on an individual’s credit report, and creditors may not be willing to loan money to people who have undergone bankruptcy. The effect of bankruptcy on creditworthiness may not be especially significant because damage to one’s credit score is often already an accomplished fact by the time one considers bankruptcy.

Debtors often ask if they can save their home in bankruptcy.  Often, they can.  Massachusetts has a relatively generous “homestead” protection, and people filing a Chapter 7 bankruptcy can frequently keep their home when they are current on mortgage payments.  For debtor’s whose home are in foreclosure, an advantage of Chapter 13 over Chapter 7 includes the ability, in some cases, to stop foreclosures and even the ability to sometimes avoid second mortgages all together.

If you want to learn more about the possibility of filing for bankruptcy, as well as possible alternatives to bankruptcy, call Steve Mooney Law Offices, P.C. today at (978) 457-3834.