Depending on your individual situation, Chapter7 or Chapter 13 bankruptcy may be the better choice. Following are descriptions of both.
When a consumer files Chapter 7 bankruptcy, they will go into court to declare that they are unable to service the debt that they carry. Known as liquidation bankruptcy, Chapter 7 will discharge all of a consumer's unsecured debt. This is accomplished by turning over all non-exempt property to a trustee who will sell the items and use the proceeds to pay the consumer's creditors.
Most Chapter 7 bankruptcy cases don't actually require the debtor to surrender any property. Secured debt, such as car loans or mortgages, must be reaffirmed (take it out of the bankruptcy) for the consumer to keep the item that is used to secure the debt.
About 90 days after the case is filed, the consumer will be granted a discharge and will no longer owe the debt.
While a Chapter 7 consumer bankruptcy is simple in theory, there are a number of factors to consider.
First a consumer must qualify by going through a mandated "Means Test" that is used to determine how much disposable income would be available to pay creditors. Second, not all debt can be discharged in a Chapter 7 bankruptcy. Debts arising from taxes, student loans, alimony, child support, drunk driving or intentional acts are not eligible for discharge.
Consumers who file a Chapter 13 bankruptcy are seeking to reorganize their debt. With the help of a qualified bankruptcy attorney, the consumer will develop a plan to repay most of their debt over a 3 to 5 year period. It allows the consumer to keep assets, such as a car or home, if the debt is confirmed by the consumer and all arrears are made up in the Chapter 13 payment plan.
Some advantages of Chapter 13 are that it will stop foreclosure and allow a consumer to catch up on mortgage payments over time. It stops lawsuits and garnishments to give the consumer time to get back on their feet. It also allows them to pay as much as they can to their creditors without having to turn over your non-exempt property to the bankruptcy trustee.
The automatic stay for Chapter 13 bankruptcy is usually broader than that of Chapter 7 bankruptcy in that it will include a consumer’s co-debtors.
Chapter 13 bankruptcy requires that “priority claims,” such as tax bills that are less than three years old and back child support payments, be paid in full. Some fees and penalties on those taxes can be reduced. A good bankruptcy lawyer will evaluate the consumer’s situation and explain all the options available.
Bankruptcy may seem like an extreme solution. Taking the step can be frightening. Our staff is here to take the fear out of the process. Getting your finances back under control is the goal. Bankruptcy is a tool that can help you get your debt back to a manageable level and move forward without the stress and harassment of debt collectors.