More Connecticut debtors choosing Chapter 13 bankruptcy for debt relief

Though the rate at which Connecticut residents are filing bankruptcy has steadily declined in recent years, the rate at which residents are choosing Chapter 13 bankruptcy over Chapter 7 has risen. According to data provided by the United States Bankruptcy Court, filings in Connecticut hit a five-year low in 2013, with only 7,154 people seeking bankruptcy protection.

Interestingly, while the overall rate of bankruptcies of all types has decreased, the number of people filing under Chapter 13 has proportionately increased compared to those filing under Chapter 7. Experts theorize that this ties in to the recovery of the nation's economy; as people are more secure in their jobs and income, they are more willing to handle the payments required under a Chapter 13 bankruptcy repayment plan.

How do the consumer bankruptcy options differ?

Typically, personal bankruptcies are either filed under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. While both of these yield the same result - discharge of debt and a fresh financial start - the method by which that end is reached differs greatly.

Chapter 7 is commonly referred to as "liquidation bankruptcy." In this type of bankruptcy filing, a debtor's non-exempt assets are sold ("liquidated"), and any proceeds of sale are passed along to creditors. It is important to remember that the majority of a filer's personal belongings, including clothing, housewares, furnishings, a vehicle and a residence, are considered exempt from sale. Once a debtor passes the "means test" to qualify for Chapter 7 protection, he or she can expect a relatively quick discharge of debt and resolution of the bankruptcy. Many Chapter 7 cases are completed in as little as three-to-six months.

Chapter 13, on the other hand, does not involve the sale of any of the debtor's assets. Instead, it centers around the consolidation of multiple debts into a single monthly payment for the debtor. These repayment plans typically last between three and five years, after which time remaining eligible debt is discharged. Chapter 13 bankruptcy requires, in order to comply with the terms of the repayment, that applicants have a steady source of income.

How are the various types of consumer bankruptcy similar?

Any successful bankruptcy will offer a significant relief from debt and the opportunity to begin anew. There are some caveats to bankruptcy protection, however. For example, bankruptcy will not discharge several types of debt, including:

  • Most student loans (though some debtors have gotten loans discharged because of "undue hardship")
  • Tax debt
  • Child support or alimony arrearages and future payments
  • Mortgage payments (though arrearages may be rolled into a Chapter 13 repayment plan)
  • Debt incurred after the beginning of the bankruptcy

No matter what type of bankruptcy you seek, there is help out there. For more information about possible debt management and relief options that could help you prevent foreclosure, stop creditor harassment and avoid vehicle repossession, consult a Connecticut bankruptcy attorney today.