When a debt has been charged off, that doesn’t mean it’s wiped away.
What is consumer bankruptcy?
If you’ve accumulated debt on personal expenses, then you have consumer debt. Consumer bankruptcy refers to the type of personal bankruptcy filed to reduce this type of debt.
If you have consumer debt, you can file either Chapter 7 or Chapter 13 bankruptcy. In Chapter 7, you typically don’t pay anything back to your creditors unless you have substantial assets to liquidate.
Chapter 13 requires you to set up a repayment plan and make monthly payments. The duration is typically from three and five years. You must fall below a certain income level to qualify for Chapter 7. If you exceed the limit, you must file for Chapter 13 bankruptcy.
With Chapter 7 bankruptcy, the trustee in charge of your case may require you to sell all or a portion of your assets to pay back all or some of your creditors. The bankruptcy court exempts some property, so you may not have to sell your home or your car. If you don’t own property beyond your exempt property, then you won’t have to sell anything.
With Chapter 13, also known as reorganization bankruptcy, you negotiate a plan to repay your debts instead of eliminating them. This is also known as wage-earner bankruptcy, because you must have steady income to fund the repayment plan.
The court calculates the amount you pay to the creditors by considering how much you earn and how much you owe. It also factors in how much the creditors would have received under Chapter 7 bankruptcy.
Even with Chapter 13, you may not have to repay all of your debts. Once you complete the agreed-on payment plan, any remaining debt is typically wiped out.
If you’re worried about losing your home in a Chapter 13 bankruptcy, find out if your home could be at risk.
Consumer bankruptcy example
If your debt consists solely of credit card debt, a car loan and a mortgage, then you can file a consumer bankruptcy case, regardless of how much money you make or how many assets you own. After accounting for all your exemptions, most debts are fully discharged in Chapter 7 bankruptcy if you have no assets to sell.
However, some debts, such as child support, are not wiped out, even in bankruptcy. If you have property that exceeds the exemption amount, you will have to sell it. Chapter 7 bankruptcy cases are usually complete in three to six months compared to the three to five years it takes to complete payments for Chapter 13.
If you’re considering bankruptcy, learn the ways you can get out of debt.