BANKRUPTCY: CHAPTER 7 and CHAPTER 13

BANKRUPTCY

Once you have filed for bankruptcy protection, your bills will be canceled and you will no longer have to pay them.

       There is one major difference between a Chapter 7 and Chapter 13 bankruptcy. Under a Chapter 13 bankruptcy, you are required to make some payments to your creditors through the payment plan. Under a Chapter 7 bankruptcy, you do not have to make any payments to your creditors.

Chapter 7

       Generally, under a Chapter 7 bankruptcy, you are able to keep all of your possessions, including your cars and home. However, if you plan on keeping you cars and home, you are required to be current on the payments and continue making the payments on them during the bankruptcy process. You must list all of your bills in your petition. You are not permitted to “pick and choose” which debts you want discharged and which you want to retain. However, you still have the option of repaying a debt that has been discharged, but you are not legally required to do so. If you do not qualify for a Chapter 7 bankruptcy, then you are only permitted to file a Chapter 13 bankruptcy. A person is allowed to file a Chapter 7 bankruptcy once every 8 years.

Chapter 13

       A Chapter 13 bnakruptcy is available for people who have steady incomes and who are able to continue to pay some of their bills. Under a Chapter 13 bankruptcy, you submit a minimu 3 year (typically 5 year) payment plan to the bankruptcy court. (This payment plan is based off your Disposable Monthly Income (DMI), or available non-exempt assets.) At the end of the payment plan, if you have successfully completed the Plan, the remaining unsecured debt is discharged and you are relieved of any obligation to repay it.

       There are several benefits to filing a Chapter 13 bankruptcy. The most important benefit is that you can stop a foreclosure of your home or stop the repossession of your car. Chapter 13 bankruptcy allows you to catch up on past due payments (known as “Arrearages”) over the life of the payment plan, instead of requiring a lump sum payment immediately. Another important benefit is that you can “strip down” car payments and “strip off” 2^nd mortgages, thereby reducing your overall secured debt as well. Chapter 13 bankruptcy also protects co-signers, so your creditors can’t go after a spouse or family member for the value of the loan because you have filed bankruptcy. A person is allowed to file a Chapter 13 bankruptcy once every 4 years.