The past year has seen millions of Americans either out of work or in limbo with limited resources to keep them afloat. Some people are facing foreclosure, eviction or wage garnishments due to unpaid bills, and their predicament is made worse when they are unable to provide for the very basic needs of their children.
Many Maryland and District of Columbia residents who are seeking debt relief are not sure whether to file for bankruptcy or to negotiate a loan or foreclosure modification. But no matter what you decide, it is important to start the process early enough, before repossession or foreclosure proceedings limit what assets you can control.
If you decide that bankruptcy is the best route, which kind of bankruptcy should you file for? Most cases are filed under one of three chapters of the Federal Bankruptcy Code. The three main types of bankruptcy are:
- Chapter 7, or “straight bankruptcy”, is a liquidation proceeding that can take place if the individual’s income falls below the state’s median income threshold. People who file for Chapter 7 are seeking a discharge from debt in order to get a fresh start. Their debt may have ballooned due to illness or medical debt, overextended credit or unemployment. Some debt, such as alimony, child support or recent tax debt cannot be discharged.
- Chapter 13 is a reorganization proceeding in which the individual debtor will retain property, such as the home or car, and will develop a repayment plan with their creditors to pay off all or part of certain debt within a period of three to five years. This type of bankruptcy is overseen by a court-appointed trustee who oversees the repayment of debt to creditors.
- Chapter 11 is also a reorganization proceeding, but for businesses or for individuals whose assets exceed $1 million.
Coming up with a plan
Understanding what your options are can be difficult when bills are mounting and creditors are threatening you with wage garnishment, foreclosure or repossession. Deciding the best path out of crippling debt can be overwhelming without key legal counsel that can advise you on the best path forward to obtain results that fit your individual circumstances.