Discussing finances can be comfortable, so no one really likes to talk about debt. Just mentioning the word bankruptcy might even feel taboo. Unfortunately, this perspective can make it even harder for someone to take necessary action when paying off debt becomes impossible. Understanding more about the process and the differences between Chapter 7 and Chapter 13 bankruptcy could help make it easier for anyone who is hesitant about taking this step.
Chapter 7 bankruptcy is considered a liquidation bankruptcy, which means that some of a person’s assets will be sold to pay off as much debt as possible. The remaining debt is discharged after that, although there are exceptions. However, to even qualify for Chapter 7, an individual has to pass the means test. The means test measures whether a person’s income is less than Connecticut’s median income for the size of his or her household. If so, he or she passes.
Chapter 13 bankruptcy is for people who earn more than the median income. This form of bankruptcy is for reorganizing debt so that the person filing can pay it off in three to five years. Sometimes, debt has to be negotiated down to fit within that time frame. Unlike with Chapter 7, there is no income test for Chapter 13 and no one is required to sell off any of their assets. This form of bankruptcy is a good option for homeowners who have not been able to get current with their mortgage payments as it makes it easier to keep their homes.
Adults in Connecticut might be more willing to consider options such as bankruptcy if people were more open about their financial situations. However, it does not seem like people are going to get comfortable talking about money any time soon. This is why it is so important for consumers to educate themselves as much as possible regarding finances, debt and even bankruptcy.