Bankruptcy is a legal process available to most individuals and married couples that permits a person or married couple to either eliminate most types of consumer debt (Chapter 7) or propose a repayment plan under bankruptcy court supervision (Chapter 13). Most, but not all, individuals or married couples are eligible for either Chapter 7 or Chapter 13. Sometimes an individual or married couple have a choice about which type of bankruptcy they can file. The type of debt you have can be an important factor in determining which type of bankruptcy is most beneficial. There are important differences between Chapter 7 and Chapter13 bankruptcy.
CHAPTER 7 BANKRUPTCY: Chapter 7 bankruptcy is filed primarily by individuals, married couples (who meet qualification criteria) or small businesses (who cease business) to eliminate debt and achieve a “fresh start.” When a Chapter 7 bankruptcy is filed you are granted an automatic “stay” on creditor collection. This means that once a Chapter 7 bankruptcy is filed creditor collections efforts and tactics, including wage garnishment, court hearings, lawsuits, phone calls, letters and other forms of creditor harassment must stop. If a creditor fails to stop collection efforts after being notified of the filing of a Chapter 7 bankruptcy that creditor may be subject to punishment. Once the bankruptcy process is concluded most debts are “discharged,” which means eliminated. Individuals or married couples or receive a discharge in Chapter 7 bankruptcy are no longer legally liable for discharged debts. Creditors whose debts are discharged cannot legally collect on those debts and in fact may not make any effort to collect on a discharged debt. A Chapter 7 bankruptcy discharge erects a barrier to any further collection efforts. Keep in mind that there are some types of debt that cannot be discharged in bankruptcy including most student loans, most tax debt, alimony, child support, debts arising out of a divorce, court fines such as speeding tickets, debts that were a result of auto accidents involving intoxication, debts that are a result of criminal activity and debts incurred through fraud. Secured debt, such as debt that is tied to a car, home, furniture, appliances or other collateral must be paid if you want to keep the property that is tied to the debt. Understandably, you may have questions or concerns about potential Chapter 7 bankruptcy. We have addressed many of the concerns that we frequently hear in additional mini-articles are on our web site.
CHAPTER 13 BANKRUPTCY: Chapter 13 bankruptcy is a court supervised reorganization
and repayment plan that permits individuals and married couples who have a steady and reliable source of income to propose a Plan to their creditors to repay some or all of their debt over time, usually a three to five-year period. A Chapter 13 bankruptcy requires a monthly payment. The amount of the monthly payment depends upon the household income and expenses as well as the type and amount of debt that needs to be paid through the repayment plan. Chapter 13 may permit you to propose a plan to cure defaults on car loans, home mortgages, student loans and child support. Filing a Chapter 13 bankruptcy can stop a Sheriff’s sale of real estate, rescue a home from foreclosure and permit repayment of the missed mortgage payments over time. You may be able to eliminate second mortgages and combine payments on cars and other secured debt into one affordable monthly payment. Depending on a person or married couples’s circumstances it is possible that some debt (unsecured debt) can be eliminated without a substantial amount of that debt being repaid. Like a Chapter 7 bankruptcy, filing a Chapter 13 bankruptcy stops wage garnishments as well as other collection activities. In the end, for most Chapter 13 bankruptcy candidates, a discharge eliminates unsecured debts not paid during the term of the Chapter 13 bankruptcy. If you have questions about whether Chapter 13 bankruptcy is an option for you, the experienced bankruptcy attorneys at Kinkade & Associates would be pleased to meet with you and discuss your situation.