Anyone meeting with a bankruptcy lawyer will want to discuss their options. In the broadest sense, a person seeking bankruptcy relief will have to choose between one of two approaches. First, there is liquidation. Second, there is restructuring.
You will want to understand the two, and a bankruptcy attorney will want you to be clear about your choice, too. Let's look at how liquidation and restructuring differ.
Liquidation is a process where the court sells all of a party's non-exempt assets. When the sale is done, a court-appointed trustee distributes the money to the creditors. Even if there is no more money left after that, the court discharges the debts. That is the end of them.
Notably, exempt assets usually include things like clothes, furniture, a practical and reasonably-priced vehicle, dishes, and so on. If you own your primary residence without a mortgage hanging over it, you can claim an exemption on it, too. However, any secured debts, such as car loans or mortgages, will leave the attached assets non-exempt.
Restructuring means proposing a plan to pay your creditors a reduced amount. You can restructure both secured and unsecured assets, too. If the court approves your plan, you'll have between three and five years to make good on the payments. After payment is done, the judge discharges the difference between what was owed and the amount paid under the plan.
There is a nearly automatic qualification process for liquidation of personal debts if someone makes less than half of their state's median annual income. However, even if you don't qualify on that basis, you and your bankruptcy lawyer can ask the court to consider your overall financial situation.
People restructuring through bankruptcy may face a more complex process. They have to prove they need a reduction of debts to pay, and they have to supply a plan. It is a good idea to hire a bankruptcy attorney to assist you with filing for restructuring.
Someone who successfully petitions for liquidation under Chapter 7 is done once the court concludes the selling process. Conversely, a party pursuing restructuring will usually spend a few years making payments. In both instances, though, the court will likely hear the case and decide within a few months at most. Many simpler liquidation cases wrap up within several weeks.
Notably, the time difference between filing each type again is significant. You must allow 8 years between liquidation filings. Conversely, you may request a new restructuring hearing within two years after a previous one.
For more information, contact a bankruptcy lawyer near you.