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If you have read the news lately I am sure you are aware that Toys’R Us has filed for bankruptcy. Toys’R Us is the third largest company to go through a chapter 11 bankruptcy, which is a type of ‘reorganization bankruptcy. It’s primarily used when a company needs to restructure its debts to move forward, at least for the time being. Chapter 11 can help stave off immediate foreclosure through using its assets to pay off portions of its debts over time. This doesn’t mean the ending of the company, as GM showed in 2009 when it went through a similar restructuring, a business can emerge from the bankruptcy process and still have a future.

For an individual who has gotten into significant debt there are two different types, ‘Chapter 7’ and ‘Chapter 11.’ There is no minimum debt amount to file for bankruptcy but if your income is too high Chapter 7 may not be allowed by the courts if they deem you as being able to pay your debts. The same follows that you will not be able to file Chapter 13 if your income is too low and your debts substantial.

‘Chapter 7’ will forgive all debt or all that is legally allowable over a 3-6 month period. This does not include school loans, alimony, tax debts or child support. You may lose most of your property as part of a liquidation of assets. In order to qualify the debtor’s income must be under the state median. If it is over that median you will be subject to a mean’s test. This test makes sure that those who are capable of paying off the debt do not have it forgiven. Other reasons you may not be able to file are if you had a different bankruptcy within 8 years or not attending the mandatory credit counseling.

‘Chapter 13’ is a different sort reorganization bankruptcy. It is not a total forgiving of all debts but uses your income to allow the debts to be consolidated and slowly paid off while protecting your assets from liquidation. Filing for Chapter 13 is contingent on you being above the median income for your state and with a steady income so that you do not miss payments. The structured repayment of your debts typically takes 5 years. Much like Chapter 7, you must complete credit counseling with an agency approved by the United States Trustee’s Office.

This was just a very quick overview of an incredibly tense topic. A bankruptcy is a big life event which you should not face alone. Hiring the right lawyer to help guide you through the process is imperative.

If you are seeking representation for a bankruptcy case, call today for a free consultation 800-709-1131 or fill out a contact form on our website for a no-cost consultation. We hope to hear from you today!