Which of the Federal Bankruptcy Plans Frees You From Having to Repay Your Debts?

Which of the Federal Bankruptcy Plans Frees You From Having to Repay Your Debts?

Debt can often become overwhelming and seemingly impossible to escape. In such situations, filing for bankruptcy is often seen as a last resort to find relief from financial burdens. However, not all bankruptcy plans are the same, and it is important to understand the options available to you. In this article, we will discuss the federal bankruptcy plans that can free you from having to repay your debts, and provide a comprehensive FAQ section to address common questions.

Chapter 7 Bankruptcy:
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is the most common form of bankruptcy in the United States. This plan allows individuals or businesses to discharge most of their debts entirely, providing them with a fresh start. However, not all debts can be discharged under Chapter 7, such as child support, alimony, student loans, taxes, and recent luxury purchases.

To qualify for Chapter 7 bankruptcy, you must pass the means test, which compares your income to the median income in your state. If your income is below the state median, you are eligible for Chapter 7. If your income exceeds the median, you may still qualify based on your expenses and disposable income.

Chapter 13 Bankruptcy:
Chapter 13 bankruptcy, also known as reorganization bankruptcy, is an alternative to Chapter 7 for individuals with a regular income. Under this plan, you can develop a repayment plan that allows you to pay off your debts over a period of three to five years. This plan is particularly beneficial for those with valuable assets, as it allows you to keep your property and catch up on missed payments, such as mortgages or car loans.

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Unlike Chapter 7, Chapter 13 does not discharge all debts. Instead, it creates a manageable repayment plan that consolidates your debts into one monthly payment. At the end of the repayment period, any remaining eligible debts are discharged, providing you with a fresh start.


Q: Will filing for bankruptcy ruin my credit score?
A: Filing for bankruptcy will impact your credit score, but the extent of the damage and the duration it remains on your credit report depends on the type of bankruptcy filed. Chapter 7 bankruptcy remains on your credit report for ten years, while Chapter 13 remains for seven years. However, it is possible to rebuild your credit over time.

Q: Can I choose between Chapter 7 and Chapter 13 bankruptcy?
A: The type of bankruptcy you qualify for depends on various factors, such as your income, expenses, and the type of debt you have. If you meet the requirements for both plans, you can choose the one that best suits your circumstances.

Q: Will I lose all my assets if I file for bankruptcy?
A: Under Chapter 7 bankruptcy, some assets may be sold to repay your debts. However, there are exemptions that protect certain properties, such as your primary residence, car, and personal belongings. In Chapter 13 bankruptcy, you can keep all your assets, as long as you make the agreed-upon payments.

Q: Can bankruptcy eliminate all types of debt?
A: No, bankruptcy does not discharge certain debts, such as child support, alimony, student loans, taxes, and recent luxury purchases. However, it can significantly reduce or eliminate other types of debt, such as credit card bills, medical expenses, and personal loans.

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Q: Can I file for bankruptcy multiple times?
A: Yes, but there are time restrictions between filings. If you previously filed for Chapter 7 bankruptcy, you must wait eight years before filing again. For Chapter 13 bankruptcy, the waiting period is two years.

In conclusion, bankruptcy can provide a fresh start and relieve you from the burden of overwhelming debt. Chapter 7 bankruptcy allows for the discharge of most debts, while Chapter 13 offers a repayment plan that enables you to catch up on missed payments. It is crucial to understand the differences between these plans and consult with a bankruptcy attorney to determine the best course of action for your financial situation.