Personal Bankruptcy Laws and Procedures

Personal Bankruptcy

Overview

• Personal bankruptcy is a legal process that allows individuals to eliminate or restructure their debts when they are unable to pay them.
• It provides a fresh start for individuals who are overwhelmed by debt.

Types of Personal Bankruptcy

• Chapter 7 Bankruptcy:
  • Liquidation bankruptcy
  • Trustee sells non-exempt assets to pay creditors
  • Most debts are discharged
  • Typically takes 4-6 months
• Chapter 13 Bankruptcy:
  • Reorganization bankruptcy
  • Debtor creates a plan to repay debts over 3-5 years
  • Debtor retains assets
  • At the end of the plan, remaining debts are discharged

Eligibility for Personal Bankruptcy

• Chapter 7:
  • Individuals with primarily consumer debt
  • Income below the median income for their state
  • Pass the means test
• Chapter 13:
  • Individuals with a regular income
  • Debt less than $1,257,850 (secured) and $419,275 (unsecured)
  • Have not had a Chapter 13 discharge in the last 2 years

Exemptions in Personal Bankruptcy

• Exempt assets: Assets that are protected from creditors
• Non-exempt assets: Assets that can be sold to pay creditors
• Examples of exempt assets:
  • Primary residence (up to a certain value)
  • Retirement accounts
  • Vehicles (up to a certain value)
  • Household goods and furnishings

Credit Counseling and Debtor Education

• Credit counseling: Required before filing for bankruptcy
• Debtor education: Required after filing for bankruptcy
• Both courses are designed to help individuals manage their finances and avoid future debt

Discharge in Personal Bankruptcy

• Discharge: A court order that releases the debtor from personal liability for debts
• Types of debts that can be discharged:
  • Credit card debt
  • Medical debt
  • Loans
  • Utility bills
• Types of debts that cannot be discharged:
  • Tax debt
  • Student loans
  • Child support and alimony
  • Criminal fines and restitution