What is Bankruptcy — And Why It MattersBankruptcy is a legal procedure governed by federal law (the U.S. Bankruptcy Code) that allows individuals (or businesses) to get a fresh start when they are overwhelmed by debts. In broad terms, bankruptcy can: - Stop creditors from suing you, garnishing wages, foreclosing on your home, or repossessing property.
- Allow you to discharge — that is, eliminate — many of your debts (credit cards, medical bills, personal loans, etc.).
- Offer, in some cases, a way to reorganize debts and repay over time instead of liquidating assets.
For residents of the Commonwealth of Virginia, state-specific laws come into play, especially around what property you can keep. Major Types of Personal Bankruptcy in VirginiaIn Virginia (as elsewhere in the U.S.), most individuals use one of two provisions under the federal Bankruptcy Code: Chapter 7 Bankruptcy — “Liquidation”- Under Chapter 7, a court-appointed trustee may sell (“liquidate”) your non-exempt assets and distribute proceeds to creditors.
- In exchange, you receive a discharge: most unsecured debts — like credit cards, personal loans, and medical bills — are wiped out.
- The whole process typically wraps up relatively quickly — a discharge can come in as little as 3–6 months after filing.
- However, not all debts are dischargeable (see “What Bankruptcy Won’t Do” below).
Because of Virginia’s exemption laws, many debtors get to keep essential property (see below). Chapter 13 Bankruptcy — “Repayment Plan”- Under Chapter 13, instead of liquidating assets, you submit a court-approved repayment plan — usually spanning 3 to 5 years.
- During that period, you pay what you can afford, and at the end of the plan, any remaining dischargeable debts may be eliminated.
- Unlike Chapter 7, you typically keep your property under Chapter 13 (you don’t lose non-exempt assets via sale).
Chapter 13 can be a better fit if you have a steady income but can’t pay all debts now — especially secured debts (like car loans, mortgages) you want to keep. |
