Our country understands the need to give individuals, families and businesses the ability to recover from financial hardship. Though no one “wants” to declare bankruptcy, bankruptcy is in fact the financial-wellness tool of last resort. The two most common forms of consumer bankruptcy are chapter 7 and chapter 13. Chapter 7 bankruptcy wipes out many debts entirely, but not everyone is eligible for Chapter 7 bankruptcy. Many debtors must file for Chapter 13 bankruptcy which requires repayment of at least a portion of their debts.
How Chapter 7 Bankruptcy Works
Bankruptcy under chapter 7 cancels your debts, but you might have to let the bankruptcy court “liquidate” (sell) some of your property to pay your creditors. Chapter 7 requires you to complete credit counseling with an agency approved by the United States Trustee, and you can’t use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could complete a Chapter 13 repayment plan. Chapter 7 bankruptcy puts into effect an “Order for Relief” — known informally as the “automatic stay.” The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab (“garnish”) your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service or welfare benefits. At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).
How Chapter 13 Bankruptcy Works
You cannot file for Chapter 7 if you do not satisfy the new requirements imposed by the 2005 revisions to the bankruptcy law. Under these new rules, you cannot file for Chapter 7 if both (a) your current monthly income (over the six months prior to your filing date) exceeds the median income for a household of your size in your state and (b) your disposable income (the amount left after subtracting certain expenses and monthly payments for debts you would have to repay in Chapter 13), is more than the limits set by law. This is known as the “means test” — if you have the “means” to repay a certain amount of your debt through a Chapter 13 repayment plan, you are ineligible for Chapter 7 bankruptcy.
Benefits to chapter 13 bankruptcy include the ability to make up missed payments, and to pay over time tax obligations, student loans, or other debts that cannot be discharged in Chapter 7. Also, In Chapter 13, you don’t have to give up any property because you repay your debts from your income. If you have nonexempt property that you can’t bear to part with, Chapter 13 might be the better choice, especially if you have a co-debtor if you file for Chapter 7 bankruptcy, your co-debtor is still liable, but under chapter 13, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.
A Chapter 13 plan will require you to repay a portion of the debt owed to your creditors over a five year period. The judge will decide what percentage of your monthly income will be required to repay your creditors based on the bankruptcy laws that apply in your state. The amount that you pay monthly to the Trustee can increase over the course of bankruptcy representation if your income improves.
* Debt Help Lawyers will also provide advice and assistance on, among other things, whether your fair debt collection rights are being violated. Debt settlement may also be an option. Under the LawCent- Post-Paid Legal Services Program interventions, validations and disputes, credit card billing disputes, and other consumer financial legal services, may also be available. Home mortgage help may also be an option. Bankruptcy services are not yet available through this website.
By an Act of Congress and the President of the United States, we are a federal Debt Relief Agency. Attorneys and/or law firms promoted through this Web site are also federally designated Debt Relief Agencies. They help people file for relief under the U.S. Bankruptcy Code. Disclosures Required Under the U.S. Bankruptcy Code.