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Liquidation vs. reorganization bankruptcy

On Behalf of | Jan 4, 2019 | Bankruptcy

Virginia residents who are looking to file for bankruptcy will generally consider Chapter 7 or Chapter 13 protection. Chapter 7 cases are referred to as liquidation bankruptcies as they involve selling nonexempt property to raise capital to pay off debts. Any balances that remain after assets are liquidated are usually discharged. The entire process takes as little as four months to complete, but not all debtors will qualify for Chapter 7 protection.

Those who cannot pass a means test will be required to apply for Chapter 13 protection. This involves repaying debts over a period of three or five years in accordance with an approved payment plan. The payments are made using regular income, and an individual is also required to stay current on other debt obligations during the repayment period. Regardless of what type of bankruptcy is filed, it’s important to be truthful and accurate on documents submitted to the court.

It’s also important that debtors take a credit counseling course prior to filing for bankruptcy. Upon completion, a debtor will be given a certificate that will be provided to the court proving that this requirement has been met. Those who file for Chapter 13 protection will need to take an additional course after their case is completed.

Bankruptcy can be a wise option for those who are seeking relief from overwhelming debt. During a bankruptcy case, creditors are generally unable to foreclose on or repossess property like a house or car. This may give a debtor time to renegotiate a secured debt or come up with the money needed to get current on a debt obligation. An attorney could explain the benefits of bankruptcy as well as help a debtor if a creditor violates the automatic stay.