Bankruptcy

CHAPTER 7 BANKRUPTCY

Chapter 7 bankruptcy or “straight bankruptcy” is the most popular form of bankruptcy because it allows the debtor to “wipe the slate clean” and start all over. This code is available to individuals, couples, corporations and partnerships. Discharge normally occurs within 4-6 months after filing.

Non-exempt assets will go under the care of a trustee who liquidates them to satisfy creditors in order of their secured interests. Any wages a debtor earns is off limits to creditors who had a vested interest on the date of filing.

This code is generally used by those who lack sufficient income to cover outstanding debts after taking care of basic necessities, and who have no hope of ever repaying their creditors. There are certain obligations that are not dischargeable, for example:

Alimony and child support
Back taxes under 3 years old and student loans
Recently made purchases for substantial amounts
Property executed contracts involving titles or liens

Before considering chapter 7 you should take an inventory of the types of debt owed. This will give you a better idea if filing will give you the relief you seek.

Who should consider chapter 7?

If there is no hope of repaying any of your debts.
If there are no cosigners involved
If court action by creditors is imminent, filing stays all collection proceeding while in court.

CHAPTER 13 BANKRUPTCY

Wages Earners Plan

Chapter 13 bankruptcy is the reorganization of an individual consumer’s debt with a new payment schedule. If you have too much disposable income to qualify for chapter 7 or have assets you want to protect, you may want to consider this code. Your debts must be below a certain level and you must have steady income.

With this chapter the debtor reaffirms to pay all or a part of their debt. The amount of repayment can range from 10% to 100% depending on the debtors income and the composition of amount owed. This code allows the debtor to restructure their payments and set up a new payment schedule (usually 3-5 years) that is more manageable.

This form of bankruptcy is used when the petitioner has property they want to keep like a mortgage that is about to be foreclosed on and other non-exempt assets that would be liquidated under chapter 7. Filing under this code will also halt all collection and foreclosure proceedings (including IRS) and allow the debtor to catch up on their payments and reinstate their original agreement. Your payments will be made to a Trustee who will disburse them in a manner called for in the court-approved plan. During this time the Trustee will have control over your (personal) finances and any credit-related matters will have to be cleared through him.

Who should consider this chapter?

If you are behind on your mortgage and need to catch up or if you owe the IRS.
If the assets you want to protect would be liquidated under a chapter 7 and your disposable income is to high to qualify for a chapter 7.
If you need relief from collection proceedings or if you wish keep your obligation to pay your creditors and need some breathing room.
You filed chapter 7 sometime in the past 6 years. You have a co-signer. If you could pay your debts within 3-5 years.

Alternatives:

If your debts are primarily unsecured debt, (credit cards, medical bills, unsecured loans etc.) you may want to consider debt restructuring through a credit counseling or debt management agency who specializes in consolidation of unsecured debt.