There are four chapters under which people can file for relief under the bankruptcy code. Chapter 11 is primarily for corporations that want to stay in business and restructure their debt. Chapter 12 is for farmers. So for most folks, it’s either Chapter 7 or Chapter 13.
Whether you can file Chapter 7 or Chapter 13 depends on your individual circumstances: your income, how much property you have, and what kind of debt you have (secured or unsecured, dischargable or non-dischargable). It also depends on what you want to accomplish by filing bankruptcy. Do you want to try to save property, or are you willing to let property go in exchange for a fresh start? Those are the questions we discuss and try to answer in your free initial consultation.
Chapter 7.
Chapter 7 is often referred to as “straight bankruptcy”. You are allowed to keep a certain limited amount of property ("exempt property” – see Frequently Asked Questions). Any property worth more than the exempt amount must be turned over to the bankruptcy trustee, who sells the property and makes cash distributions to your unsecured creditors. Unsecured debts are discharged in Chapter 7. Some debts are not discharged in bankruptcy, such as alimony and child support. Student loans and taxes are usually not dischargable, but may be in certain circumstances.
Mortgages and car loans are not discharged in Chapter 7. If your equity in the property does not exceed your exemptions, you may keep the property, but you will have to make your payments and keep them current. You may choose to surrender the property, and in that case the debt will be discharged.
Chapter 7 is generally filed by people who are in a very bad situation financially and want a fresh start.
Chapter 13.
Chapter13 used to be called the “wage earner” plan. That really was not an accurate description: it is a debt reorganization plan for individuals. You do have to have some form of regular income sufficient for you to make your Chapter 13 plan payment and meet your other living expenses. The Chapter 13 plan encompasses all your debts in one monthly payment, and it is usually far less than the total you are now paying for all the debts individually. You may be able to leave certain payments outside the plan, but you will have to tell the court about those payments.
Chapter 13 is frequently used to prevent home foreclosures and car repossessions. When you file Chapter 13, the court automatically enters a court order prohibiting your creditors from taking any action to collect from you, including repossessions, lawsuits, foreclosures, and even calling you on the phone. We will submit a repayment plan to the court. Depending on your individual circumstances, these are some of the things that are possible to do under Chapter 13: take up to five years to pay off your mortgage arrears, reduce the interest rate or principal balance on your car loan, pay off your taxes for less than the full amount, and pay your unsecured creditors (credit cards, personal loans, medical bills, etc.) no interest, reduced principal, or sometimes even nothing at all! Each case is different, and I will determine what is possible for you at your free initial consultation.
