A Chapter 7 bankruptcy is commonly known as a “fresh start bankruptcy,” a “straight bankruptcy,” or a “liquidation bankruptcy.” Basically, in a Chapter 7 bankruptcy you keep all of the property you own up to a certain dollar amount and any property above that can be taken by a bankruptcy trustee and sold, with the money going to pay down your debt. Any remaining debt is discharged (i.e. “wiped out.”) However, in the vast majority of Chapter 7 cases the debtor keeps all property. When you finish your Chapter 7 bankruptcy debts such as credit cards, medical bills and unsecured loans will be discharged. If you owe on a house, car or other property you must keep making the payments in order to keep the property. If you would rather not make the payments on secured property, or you can no longer afford them, you can give the property back to the lender and the lender cannot “come after you” for the remaining balance or penalties.
A Chapter 13 bankruptcy is commonly known as a “debt reorganization” bankruptcy. In a Chapter 13 bankruptcy you keep most or all of your property while you make monthly payments on some or all of your debt over three or five years. Your monthly payment may include your mortgage payment, arrears on your mortgage payment if you are behind, car payments, back taxes, child support, and spousal maintenance. It may or may not include payment towards your unsecured debt (credit cards, medical bills, deficiencies on repossessions, etc.) At the end of your Chapter 13 bankruptcy any remaining unsecured debt is discharged (i.e. “wiped out.”)
WHICH CHAPTER IS RIGHT FOR YOU?
First you must qualify for either a Chapter 7 and/or Chapter 13. Once you are qualified you still might be able to elect one or the other. Every person’s situation is different and there are many issues to consider when deciding upon a bankruptcy chapter. Therefore the answer is not “one size fits all.” Together we will review your financial situation and I will advise you of all of your bankruptcy options, including the pros and cons of each.
To read more about the bankruptcy process and the different bankruptcy chapters click here.