Chapter 7 or 13?
Individual bankruptcy filings generally fall into two categories, Chapter 7 and Chapter 13 bankruptcy protection.
Chapter 7 Bankruptcy is also known as “liquidation.” In this type of proceeding, a debtor asks the court to release him or her from liability for specific debts, thereby preventing a creditor from pursuing those debts once the case is closed. Certain types of assets may be protected from creditors while others may become part of the assets that the court uses to satisfy all or part of the outstanding balances. Under current federal law, a debtor must undergo a “means test” before being allowed to file under Chapter 7. This means test evaluates a person’s current financial condition, including available assets and income level in relation to the outstanding balances owed to creditors. If it appears unlikely that the individual will be able to satisfy these obligations in what the court considers a “reasonable period of time,” Chapter 7 is likely available.
Chapter 13 Bankruptcy is also known as “debt adjustment” or “wage earner plan” bankruptcy, and is a reorganization similar to what companies often do. In these cases, debtors usually are able to keep most, if not all, of their assets and are placed on a repayment plan based on both their obligations and their income. Under Chapter 13, many debts are eligible to be adjusted. This type of bankruptcy filing has a less derogatory impact on a consumer’s credit history and score.
Due to the profound implications of any bankruptcy filing and the complicated nature of the process, it is advisable to obtain the services of a Rhode Island bankruptcy attorney. Contact Attorney Boezi if you would like more information.