Bankruptcy Services

The terms Chapter 7 and Chapter 13 refer to specific sections of the Bankruptcy Code. Chapter 7 often is called “straight bankruptcy” or “liquidation.” Chapter 13 may be referred to as a “wage-earner” or “debt consolidation and repayment” plan. Chapter 11 refers to reorganization of debts, usually by a partnership, corporation or high-income individual; while Chapter 12 is devoted to family farmers. Only Chapter 7 and 13 are covered here.


Chapter 7

 

Chapter 7 bankruptcy is often referred to as straight bankruptcy or liquidation. For those who qualify, it allows individuals to wipe the slate clean of unsecured debts. Unsecured debts typically include credit cards, medical bills, and signature loans, as well as unpaid rent or utility bills. Congress enacted this law to offer a fresh start to individuals, married couples or businesses facing financial difficulty.

Filing for Chapter 7 relief instantly protects you from all collection efforts by your creditors. In the vast majority of cases, a Chapter 7 allows you to keep all of your assets and make a fresh start—unburdened by crushing debt. Chapter 7 does not typically discharge student loans, certain IRS debts, family support obligations, or criminal fines or fees. Our team works closely with you to determine the best course of action. 

If you decide to file Chapter 7 you will meet with an attorney and work directly with him to create documents, called schedules, which list your creditors, as well as your assets, income and expenses. These schedules are signed by you and filed with the United States Bankruptcy Court. Once these documents are filed the “Automatic Stay” – a mandatory suspension under the Federal Bankruptcy Code of all collection efforts – immediately takes effect. Your creditors will be quickly notified of your filing and the harassing phone calls, lawsuits, garnishments, repossessions or foreclosure is halted.

It generally takes about six months before the judge assigned to your case signs the discharge order and you are relieved of all dischargeable debt. There are certain “exceptions” to discharge — debts which may not be discharged by the court, which include:

  • Recent large purchases such as appliances, jewelry, furniture

  • Cash advances made in the months prior to filing for bankruptcy relief

  • Student loans

  • Some types of tax debts

  • Alimony, child support and other debts related to family support

  • Debts due to fraudulent acts and/or intentional torts or wrongs.

If any of the above might apply to your situation, you owe it to yourself to consult with an experienced bankruptcy attorney. Even a small mistake by someone who doesn’t make bankruptcy law a full-time endeavor may be very costly to you!

In a Chapter 7 you are allowed to keep your house and vehicles if you are able to continue making your normal monthly payments to the mortgage or finance company, and if you don’t have an excessive amount of equity in your property. Again, what is considered “excessive” may not be as simple a calculation as you think. Don’t lose your home due to an inexperienced lawyer.

Briefly, when a creditor has a lien on any of your property you can choose to surrender the property to the creditor in satisfaction of the debt. If you want to keep the property these secured debts, such as homes, vehicles, or certain installment loans, may need to be “reaffirmed.” Reaffirmation means you keep the property by signing and filing a formal written agreement in a timely manner to maintain the existing payment plan with that creditor. For a debt to be reaffirmed, most creditors expect payments on the secured account to be current at the time of filing. You also must show sufficient excess monthly income to afford the future payments.

The benefit to you is you get to keep property that is the subject of the debt —as with a vehicle loan, for example. The possible downside to this is that you will not be protected from creditor action after the bankruptcy case is discharged if for some reason you are unable to pay the debt after all. You may rescind a reaffirmation agreement at any time within 60 days of execution, or up until discharge, whichever occurs later, providing you act to do so in a timely manner.



Chapter 13

 

Chapter 13 is a debt consolidation and repayment plan. Federal law provides Chapter 13 relief to help individuals and married couples repay all or a portion of their debts with dignity and peace of mind. As in Chapter 7, filing for Chapter 13 protection immediately provides relief from creditor calls and collection action.

Chapter 13 may be the only option available for those who earn more than permitted to qualify for Chapter 7 under the “means test.” If you are behind on home mortgage payments, Chapter 13 allows you to catch up on past due payments over 36 to 60 months. Further, if you are saddled with a high interest rate on a vehicle loan, the interest rate on that loan may be greatly reduced under Chapter 13.

Chapter 13 can thus substantially reduce your monthly debts to a single affordable monthly payment.

Our firm has the experience to work closely with you to develop a plan for the repayment of debts, present it for creditor approval and have it confirmed by the bankruptcy court. The process of creating the plan, negotiating the plans approval by creditors and the Chapter 13 Trustee, and confirmed by the bankruptcy court typically takes from three to six months.

The Chapter 13 Trustee is an attorney appointed by the Court to represent the interests of certain creditors. The Trustee takes a small percentage of the plan payments as her fee.

Repayment plans last three to five years with the payments coming from your future income. Payments to the Chapter 13 Trustee are made by you or your employer, then distributed monthly to the creditors by the Trustee.

Upon successful completion of the plan, most debts, with rare exceptions, are discharged.

A Chapter 13 bankruptcy filing may:

  • Allow you to stop the foreclosure on your home, and give you up to five years to catch up on past-due mortgage payments.

  • Stop the repossession of your vehicle and allow you to take up to five years to pay off your vehicle. It may reduce the principal balance and often lowers the interest rate you are being charged.

  • Stop the IRS from garnishing your wages or bank accounts and may allow repayment of back taxes with no additional interest or penalties.

  • Stop student loan collections and allow for little or no payment of student loans for the duration of the plan.

  • Stop suspension of your driver’s license or your incarceration for unpaid or overdue child support and alimony obligations.