For many people who have struggled over the past year with mounting debt, lost income and threats of eviction and foreclosure, the challenges can seem overwhelming, especially when creditors are calling or threatening legal action.
For many residents of Florida, personal bankruptcy can offer a way out of financial challenges that have also been made worse by medical bills or a recent divorce. Bankruptcy can also help them to recover financially without ruining their credit.
Deciding on liquidation or repayment
The types of consumer bankruptcy available to individuals are found in two chapters of Title 11, called the Bankruptcy Code. Chapter 7 bankruptcy is also called the liquidation chapter. An individual may qualify if their income is below the Florida minimum income threshold, as determined by a means test. Once approved, a trustee is appointed by the court to oversee the inventory and sale of property in the estate that is not exempt in order to pay off debts owed to creditors.
Not all debt can be liquidated. Debtors can claim some property as exempt, and can also receive a discharge which frees them from repayment of unsecured debt like credit cards, personal loans, or medical debt. Some debt, such as child support, alimony or tax debt that cannot be discharged. School loan debt can rarely be discharged.
In a Chapter 13 filing, debtors file with the intention of repayment of debt out of future income. They may keep most of their property and propose a plan, overseen by a court-appointed trustee, to repay most debt. After repayment over a period of three to five years, debtors are given a discharge of debt.
The effect of bankruptcy on credit scores
Filing for bankruptcy does not have to ruin your credit. Although a Chapter 7 bankruptcy does stay on a debtor’s record for a number of years, because the bankruptcy filing takes a relatively short amount of time, often six months, any property acquired and wages earned afterwards can help them to immediately begin to build their credit back, which will improve their credit rating over time.
A Chapter 13 bankruptcy can stay on an individual’s record for up to seven years. But the debtor steadily rebuilds credit as they pay off debt through restructured payments, which over time will restore their credit rating.
Getting knowledgeable and experienced legal advice serving the St. Petersburg area can help you determine which kind of bankruptcy is best for your individual needs.