Bankruptcy Law

There are 2 basic forms of bankruptcy: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Chapter 7 Bankruptcy is for those who want to wipe out (discharge) “unsecured” debts such as: credit cards, medical bills, store bills, back rent, payday loans, utilities etc. The debt on your house and car is “secured” debt because it is backed up by the property. Secured debt is not discharged. So you must stay current on your house and car else you will face Foreclosure and Repossession. A few categories of unsecured debt such as child support and alimony are “priority unsecured debt” and are not discharged in Chapter 7.

Under Chapter 7 Bankruptcy the debtor can give up certain “nonexempt” (non-essential property – for example a boat, expensive jewelry, vacation home – to be sold with the proceeds going to the unsecured creditors. As a practical matter this almost never happens because the essential property is usually exempt. If the debtor is in danger of losing valuable property then I will counsel him not to file!

Eligibility for Chapter 7 Bankruptcy is based on the debtor's income. The debtor is ineligible if she fails certain tests. In this context “fail” means that the debtor's income is too high and therefore she is ineligible for Chapter 7.

Chapter 7 Bankruptcy lasts for 4 months. At that time the debtor receives a bankruptcy “discharge". This means that he is legally free and clear of any obligation to repay unsecured debts (except for the “priority unsecured debts” mentioned earlier).

Chapter 13 Bankruptcy is for those with steady incomes who want to keep all their property (including their home and car) by following a monthly 3 to 5 year Repayment Plan. The Repayment Plan is available if the debtor can show that she will earn enough to have some money left over each month--after living expenses and house and car payments--to pay some of her unsecured debt : credit cards, medical bills, store bills, back rent, payday loans, utilities etc. She has to pay some unsecured debt but not all. This means that she must pay the unsecured creditors between 5 cents and 100 cents on the dollar.

What is the main difference between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy?
Under Chapter 7 the debtor discharges her unsecured debt but her home and car are not protected. The whole process takes about 4 months. Under Chapter 13 the debtor makes monthly payments over a 3 to 5 year period, and keeps all her property including the home and car.

The Stay. As soon as Chapter 7 Bankruptcy or Chapter 13 Bankruptcy is filed, the court issues a “Stay” which stops all creditor collection activities: bill collectors, garnishments, car repossessions, foreclosures, judgments, credit card bills, medical bills, payday loans, just about anything to do with collection.

Questions? Call me on my cell now at 502-592-9771 so we can discuss your choices. I will pick up personally. 502-592-9771.