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At some point, most people will encounter financial hardship, whether it’s the loss of a job, a significant illness or injury, or the death of a spouse. These hardships can sometimes result in overwhelming debt. Fortunately, there are options like bankruptcy for legal debt relief. Here are the four most common types of bankruptcy to give you insight into your options. 

4 Types of Bankruptcy

1. Chapter 7

Chapter 7 is the most common type of bankruptcy. It requires passing a means test to prove you don’t have sufficient income to pay back your creditors.

In this case, non-exempt assets may be liquidated to contribute toward repayment. However, federal and state laws allow for certain exemptions, which may enable you to keep your home and some personal items, such as clothing. Some or all of the debts you can’t pay with the sale of these assets will be discharged. Debts that may not be discharged include child support, alimony, taxes, and certain student loans.

Filing Chapter 7 gives you a clean slate financially. However, like other types of bankruptcy, it will affect your credit score and may impact your ability to secure loans or buy an apartment or home. 

2. Chapter 13

debt-relief-honolulu-HIChapter 13 involves a reorganization of debt rather than dismissal. It’s designed for debtors with regular income.

In this case, debt is consolidated and potentially lowered. Then you can establish a payment plan to make debt resolution more manageable. You’re not required to liquidate assets, and you can keep your home or car even if you’re behind on payments. The payment plan typically lasts three to five years.

3. Chapter 12

Chapter 12 provides essentially the same kind of debt relief as Chapter 13, except it’s designed for family farmers and fishers. The process is the same, except the repayment plan offers more flexibility to account for the seasonal nature of these professions. 

4. Chapter 11

Chapter 11 bankruptcy is for businesses what Chapter 13 is for individuals. It allows business owners to create a repayment plan to resolve debt without forfeiting assets. This is particularly helpful for business owners who are struggling financially short-term, as liquidating assets would put them out of business.  

 

If you need help finding debt relief, turn to Donald L. Spafford Jr. Attorney at Law. With more than 30 years of experience, this attorney has helped countless residents of Honolulu, HI, and the greater Oahu community with debt consolidation and business transactions. Call (808) 532-6300 to schedule a consultation with the bankruptcy attorney, or visit the website to learn more about the firm’s debt relief services. 

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