Chapter 7 - Chapter 13 - Bankruptcy

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Chapter 7 - Chapter 13 - Bankruptcy

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From Executive Director

Every day, Chapter 7 bankruptcy and Chapter 13 bankruptcy help thousands of people with their debt/financial problems. You too may be helped by these bankruptcy laws. You just need to learn if and how bankruptcy may help you.

This site is designed to give you information on all parts and aspects of bankruptcy and to answer your general bankruptcy questions. Just click on the topics on the right side of this page to learn more. If you have bankruptcy questions, scroll down to the question form at the bottom of this page.

What Is Bankruptcy

Bankruptcy is the legal process by which people and businesses may eliminate some or all of their debts and/or gain time to pay other debts.

While bankruptcy is filed in federal court, it is actually a combination of both federal and state law. The federal law, Title 11 of the United States Code, is the basic bankruptcy law. State laws say how certain debts, such as home or car loans, are to be handled and what property may be exempted from a person's bankruptcy.

Personal Bankruptcy - Two Types

There are only two types of personal bankruptcy for people to use: Chapter 7 bankruptcy and/or Chapter 13 bankruptcy. These are named after the applicable chapters of Title 11 of the United States Code.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy has a name that sounds far worse than it is. Sort of like a "dog's bark is worse than its' bite". Chapter 7 bankruptcy is labeled "Liquidation". It is called that because the non-exempted property of the person filing bankruptcy is sold and the net proceeds are distributed to the person's creditors. The reason that Chapter 7 bankruptcy is normally not as bad as it sounds is that in many cases, most, if not all, of the person's property is exempt. That means that the person keeps most of his property.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is labeled "Adjustment Of Debts Of An Individual With Regular Income". It is also often called a "payment plan" because that is what it is. The person filing Chapter 13 bankruptcy makes monthly payments and is given time to pay his or her debts over a period of time, usually 3 to 5 years. The person's creditors may be paid all or a portion of the money the creditor is owed. In some cases, a creditor may be paid 10% of what is owed, and in other cases, a creditor may be paid 100%. It varies bankruptcy case to bankruptcy case. With a Chapter 13, the person's property is not sold.

How Bankruptcy Can Help

There are 2 key ways that bankruptcy may help you: (1) the automatic stay and (2) the discharge of debts.

Automatic Stay

By law, as soon as someone files bankruptcy, most creditors must stop all actions to collect a debt including stopping law suits. This means that most debt/bill collectors must stop calling or contacting someone who has filed either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. It also means that, if there is a foreclosure action, the mortgage lender must halt its’ foreclosure activities until either the automatic stay is lifted by the bankruptcy court or the bankruptcy is over.

The automatic stay does not affect criminal actions, most child/family support actions, divorce cases, and certain other civil actions.

Discharge Of Debts

The bottom line is that at the end of the bankruptcy case, most, if not all, unsecured debts such as credit cards, medical bills, and personal debts are discharged, meaning that you do not have to pay the debt(s). Secured debts such as home mortgages and car loans must still be paid in order to keep the property, but it is easier to pay them when you do not have credit cards or personal debts to pay.

After the bankruptcy, if you do not pay a secured debt such as a home loan or car loan, then the lender may seek to repossess the home or car even though you had filed bankruptcy. However, because of the bankruptcy, the lender will not be able to obtain a deficiency judgment against you. A deficiency judgment is when the sale of the property does not bring in enough money to pay the debt and there is a court order that gives the lender a judgment against you for the difference between the amount of money owed on the debt and the amount of money obtained from the sale.

How To File Bankruptcy

Unfortunately, not everyone can file bankruptcy. So, first, you must qualify for either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. And the qualifications are not the same for the two types of bankruptcy.

Next, before filing bankruptcy, you must have credit counseling for bankruptcy. There are two parts to the counseling: pre-bankruptcy credit counseling and post-bankruptcy counseling. You must have the pre-bankruptcy credit counseling before you file bankruptcy. After you file bankruptcy, but before you receive a discharge of your debts, you must have post-bankruptcy counseling.

If you qualify and have had the required counseling, you file a Petition with the bankruptcy court. The petition discloses your financial data - debts, property, income, expenses, etc. - as well as stating what your intentions are in a Chapter 7 bankruptcy and what your payment plan is in a Chapter 13 bankruptcy.

There will be what is known as a Section 341 Meeting with the bankruptcy trustee and creditors who want to attend. The trustee and creditors may ask you questions about your bankruptcy.

After the 341 meeting, a Chapter 7 bankruptcy trustee will seek to sell any property that he can and disburse the net proceeds to your creditors. Most people do not have any property that the bankruptcy trustee can sell because their property is exempted from the bankruptcy. After the bankruptcy trustee concludes his/her job, the bankruptcy court will issue a discharge of dischargeable debts.

In a Chapter 13 bankruptcy, after the 341 meeting, your payment plan will need to be approved by the bankruptcy court. After the bankruptcy court has approved your payment plan, you start paying the bankruptcy trustee each month, and the trustee pays your creditors. When you have completed your plan, the bankruptcy court will issue a discharge of dischargeable debts.

The above is basically a rough outline of how bankruptcy cases are handled. It does not include different motions that can be and should be filed, nor does it cover any of the reasons that a bankruptcy may be dismissed without issuing a discharge of debts. There are a lot of technical details that affect the actual bankruptcy process and each bankruptcy case is different. Only a professional experienced with bankruptcy and who has reviewed your situation can adequately explain how your case may proceed.

This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.

Bankruptcy Questions - Ask Your Own General Bankruptcy Questions

Please use this form for your bankruptcy question(s). Your name and email address are required so that we can email you an answer.




Chapter 7 Bankruptcy and Chapter 13 Bankruptcy are 
 federal laws to give people a fresh financial start.

Learn More

Chapter 7 Bankruptcy

  Chapter 7 Bankruptcy
  Bankruptcy Exemptions
  Chapter 7 Means Test
  Chapter 7 Trustee

Chapter 13 Bankruptcy

  Chapter 13 Bankruptcy
  Chapter 13 Qualifications
  Chapter 13 Plan
  Chapter 13 Trustee
  Cram Down

Bankruptcy Information

  Bankruptcy Information
  Benefits Of Bankruptcy
  How Does Bankruptcy Work
  Chapter 7 vs Chapter 13
  Automatic Stay
  341 Meeting
  Bankruptcy Discharge

Filing Bankruptcy

  Filing Bankruptcy
  Cost Of Filing Bankruptcy

Bankruptcy FAQ

  Can I File Bankruptcy
  Can One Spouse File Bankruptcy
  How Long Does Bankruptcy Take

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