Personal bankruptcy allows individuals facing overwhelming financial difficulties to seek relief from their debts under the supervision of a court. Chapter 7 (liquidation of nonexempt assets) and Chapter 13 (reorganization of debts) are two primary types of personal bankruptcy under the federal bankruptcy code.
Your approach to personal bankruptcy can vary significantly depending on your life circumstances.
Divorce
Divorce can complicate bankruptcy decisions, as couples must navigate the division of assets and debts while considering bankruptcy. In many cases, divorced individuals may find bankruptcy to be a path toward financial independence and a way to move forward after the dissolution of their marriage.
Illness
Individuals facing severe health issues may grapple with enormous medical bills. In such situations, bankruptcy can be a way to manage the overwhelming burden of medical debt. When exploring the best bankruptcy option, take into account medical expenses and ongoing health care needs.
Entrepreneurship
Business owners who experience financial setbacks may also face personal bankruptcy. An especially nuanced approach is necessary, as bankruptcy can have implications for both personal and business finances. Entrepreneurs must carefully consider whether to file for bankruptcy individually or for their business. The decision will depend on the extent to which their personal and business finances intertwine.
Age
Young adults who find themselves in financial distress often opt for bankruptcy as a way to get a fresh start. Common reasons for bankruptcy at this stage include overwhelming credit card bills. Bankruptcy can be a lifeline to escape crippling debt and lay the foundation for future financial stability.
Middle-aged individuals may face a different set of challenges since they often have established careers, families and assets to protect. In such cases, Chapter 13 bankruptcy may be a more suitable option, allowing them to restructure debts while protecting their assets. Going by the numbers, there were 1,992 Chapter 7 cases in North Carolina in 2022, while 4,117 people filed for Chapter 13.
Seniors may be living on a fixed income, and their primary concern is often preserving their limited assets, such as their home or retirement savings. Chapter 7 bankruptcy may be more common for seniors, as it allows for the discharge of unsecured debts without affecting exempt assets.
As you think about bankruptcy, consider your goals for filing and how the filing may affect your life for the next few years.
