Types of Bankruptcy

Understanding the Types of Bankruptcy: Your Path to Financial Relief

When debt becomes overwhelming and you can't see a way out, bankruptcy might offer the fresh start you need. While the word "bankruptcy" can feel intimidating, understanding your bankruptcy options can help you make informed decisions about your financial future.

Bankruptcy serves as a legal safety net for people and businesses that are overwhelmed by debt. It provides structured pathways to either eliminate debts entirely or reorganize them into manageable payment plans. Michael Schwartz, a Bucks County bankruptcy lawyer, helps people navigate these complex legal waters with offices conveniently located in Southampton, Perkasie, and Havertown.

Chapter 7 Bankruptcy: The Fresh Start Option

Chapter 7 bankruptcy, often called "liquidation bankruptcy," is the most common form of bankruptcy for individuals. This process involves selling non-exempt assets to pay creditors, after which most remaining debts are discharged.

How Chapter 7 Works

When you file for Chapter 7 bankruptcy, a court-appointed trustee takes control of your non-exempt assets. These assets are then sold to generate funds for creditor payments. The good news? Many people who file for Chapter 7 can keep most of their property through exemptions.

Exemptions allow you to protect essential assets during bankruptcy. Common exemptions include:

• Your primary residence (up to certain value limits)
• One vehicle
• Basic household furnishings
• Tools of your trade
• Retirement accounts
• Life insurance policies

Chapter 7 bankruptcy typically takes three to six months to complete. Once your case is closed, most unsecured debts, such as credit cards, medical bills, and personal loans, are permanently discharged.

To qualify for Chapter 7, you must pass the "means test," which compares your income to the median income in your state. If your income is below the median, you likely qualify. Higher earners may still qualify if their expenses reduce their disposable income sufficiently.

Chapter 13 Bankruptcy: The Reorganization Route

Chapter 13 bankruptcy provides an alternative approach for individuals with regular income who want to keep their property while repaying debts over time.

Under Chapter 13, you create a court-approved repayment plan lasting three to five years. This plan determines how much you'll pay creditors based on your income, expenses, and debt types.

Benefits of Chapter 13

Chapter 13 provides several advantages:

• Keep Your Property: You can retain your home, car, and other assets while catching up on missed payments
• Stop Foreclosure: Filing Chapter 13 immediately stops foreclosure proceedings
• Reduce Some Debts: Certain debts may be reduced or eliminated entirely
• Flexible Payment Terms: The repayment plan considers your actual ability to pay

Eligibility Requirements

To file Chapter 13, you must have:

• Regular income sufficient to fund the repayment plan
• Unsecured debts under $419,275
• Secured debts under $1,257,850
• Filed tax returns for the past four years

The Process

After filing, you'll attend a meeting of creditors where the trustee reviews your case. Once the court approves your repayment plan, you'll make monthly payments to the trustee, who distributes funds to creditors.

Other Types of Bankruptcy: Specialized Solutions

While Chapter 7 and Chapter 13 handle most individual cases, other bankruptcy options exist for specific situations.

Chapter 11: Business Reorganization

Chapter 11 bankruptcy primarily serves businesses wanting to reorganize while continuing operations. However, individuals with debts exceeding Chapter 13 limits may also use Chapter 11.

This complex process allows businesses to:

• Restructure debt obligations
• Reject unfavorable contracts
• Continue operating during reorganization
• Develop payment plans for creditors

Chapter 12: Agricultural Protection

Chapter 12 provides relief for farmers and fishermen. This form of bankruptcy helps agricultural families reorganize debt while keeping their property and continuing operations.

Key features include:

• Flexible repayment plans
• Protection of farming operations
• Seasonal income considerations
• Lower filing fees than Chapter 11

Chapter 9: Municipal Bankruptcy

Chapter 9 addresses situations in which municipalities, such as cities, towns, or counties, are unable to pay their debts. This rare form of bankruptcy requires state authorization and involves complex negotiations with creditors.

Chapter 15: Cross-Border Cases

Chapter 15 handles bankruptcy cases involving assets or creditors in multiple countries. This specialized procedure coordinates international bankruptcy proceedings.

Making the Right Choice for Your Situation

Choosing between bankruptcy options depends on several factors:

Consider Chapter 7 if you:

• Want to eliminate debts quickly
• Have limited assets
• Cannot afford the monthly payments
• Pass the means test

Consider Chapter 13 if you:

• Want to keep your property
• Have a regular income
• Are behind on mortgage or car payments
• Have non-dischargeable debts like recent taxes

The Importance of Professional Legal Guidance

Navigating bankruptcy law requires strategic thinking and legal insight. Michael Schwartz, serving as a Bucks County bankruptcy lawyer, in Chapter 7 and Chapter 13 cases throughout the Philadelphia area.

Service Areas

The Law Office of Michael Schwartz serves clients in:

• Bucks County
• Montgomery County
• Philadelphia County
• Delaware County

Office Locations

Three convenient locations make legal assistance accessible:

• Southampton
• Perkasie
• Havertown

Taking Control of Your Financial Future

Bankruptcy isn't the end of your financial story — it's often the beginning of a new chapter. Understanding your bankruptcy options empowers you to make informed decisions about debt relief.

Whether you're considering Chapter 7's fresh start approach or Chapter 13's reorganization strategy, professional legal guidance ensures you choose the path that best serves your circumstances. Don't let overwhelming debt control your life when legal solutions exist.

Take the first step toward financial freedom by scheduling a free bankruptcy evaluation by contacting us today. Michael Schwartz offers complimentary consultations at all three locations—Southampton, Perkasie, and Havertown—making it convenient to explore your options.