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Understanding Bankruptcy: A Comprehensive Guide

How Does Bankruptcy Work?

Bankruptcy is a legal process overseen by federal courts in the U.S. that helps individuals, couples, and businesses manage overwhelming debt. Successful completion of Chapter 7 or Chapter 13 bankruptcy can discharge many consumer debts, providing a fresh financial start.

Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 are the two main types of bankruptcy available to individuals and couples. The key differences lie in how each handles debt repayment:

• Chapter 7: Involves liquidation of nonexempt assets to repay creditors. Suitable for those with limited income.
• Chapter 13: Involves a repayment plan over three to five years, allowing debtors to keep their property while catching up on missed payments.

Eligibility Rules for Bankruptcy

Eligibility for bankruptcy depends on your income:

• Chapter 7: Requires passing a means test if your income exceeds the median for your community.
• Chapter 13: Requires regular income and total secured and unsecured debts below $2,750,000 (as of 2024).

Repayment of Debts in Bankruptcy

Not all debts need to be repaid in full under Chapter 7 or Chapter 13:

• Chapter 7: Nonexempt assets are sold to repay creditors, and remaining dischargeable debts are eliminated.
• Chapter 13: A repayment plan covers priority debts and allows retention of nonexempt assets, with remaining dischargeable debts eliminated after the repayment term.

Impact of Bankruptcy on Credit

Bankruptcy significantly impacts your credit score and remains on your credit report for several years:

• Chapter 7: Stays on your credit report for up to 10 years.
• Chapter 13: Stays on your credit report for up to seven years.

Choosing Between Chapter 7 and Chapter 13

Your choice between Chapter 7 and Chapter 13 depends on your financial situation:

• Chapter 7: Suitable for those with few assets and a need for quick debt discharge.
• Chapter 13: Suitable for those with steady income who need to catch up on missed payments and keep their property.

How to Apply for Bankruptcy

Applying for bankruptcy involves several steps:

• Obtain pre-bankruptcy credit counseling from a certified counselor.
• Complete and submit necessary paperwork, available from the U.S. Bankruptcy Court website.
• Pay court fees: $338 for Chapter 7 and $313 for Chapter 13.
• Complete a debtor education class before finalizing your case.

Hiring a lawyer is recommended to navigate the complexities of bankruptcy filing.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the challenges of managing debt and navigating bankruptcy. If you need assistance with mortgage services, call us at 213-732-3074. Our team of experts is here to help you find the best solutions for your financial needs.

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