Filing a Chapter 7 Bankruptcy is the most common type of bankruptcy proceeding. It is sometimes called “straight” or “liquidation” bankruptcy. Filing a Chapter 7 Bankruptcy eliminates most kinds of unsecured debt. Some examples are credit cards, medical bills, most personal loans, judgments resulting from car accidents, and deficiencies on repossessed vehicles.
How does a Chapter 7 Bankruptcy work?
In a Chapter 7 Bankruptcy lawyers prepare a petition for you. This will list all of your assets (the things you own) and all of your debts (the creditors). A Bankruptcy lawyer will file this with the Bankruptcy Court. The Court will notify all of your creditors that you have filed. The Court will also appoint a Chapter 7 Bankruptcy trustee to oversee your bankruptcy. You will have to attend a meeting with the trustee. Your lawyer will also come with you to this meeting to make sure that it goes as smoothly as possible. Usually, you will not have to attend any other hearings, just this one. You will have about a month notice before your meeting so you will be able to take off work if you need to.
The court will usually issue a discharge in your case about 70 days after your meeting with the trustee. Once you receive the discharge, you will know that the dischargeable debts are gone forever. A bankruptcy proceeding is a complicated process. You need an experienced bankruptcy attorney to guide you through it.
Who is the Chapter 7 trustee?
The Chapter 7 trustee is appointed by the government to oversee your case. The main goals of the Chapter 7 trustee are to make sure that the forms are filled out correctly and to check if there is fraud on the part of the debtors. The Chapter 7 trustee will also check to see if you have the proper protections to keep all of your property. If you do not have the proper protection then a Chapter 7 trustee has the right to take those unprotected items and sell them. If the case is filed with a reputable law firm, then one does not have to disclose their property to them and then surprisingly lose it to a trustee. The protection laws can be very complex, but a good lawyer has the experience to help you through the maze and to protect your personal treasures.
What is a Chapter 13 Bankruptcy?
Under a Chapter 13 Bankruptcy proceeding, your debts are restructured to enable you to pay off your creditors with your future earnings. A Chapter 13 Bankruptcy Plan will be devised for you to repay your creditors. You will pay them off, usually with no interest, over a period of three to five years. The monthly payment is based in part on your income and your ability to pay. The creditors will be paid off at different rates depending on your case. Depending on your income you will be held liable for all or just a portion of your debts. In some cases the Chapter 13 trustee will pay the creditors as little as 10% of the amount you owe. Once the Chapter 13 Bankruptcy is complete the unsecured creditors can never ask for any more.
In a Chapter 13 Bankruptcy you will make one payment to a Chapter 13 trustee. The trustee will use that money to pay all of your creditors. This will give you one easy payment to make each month. The goal of the Chapter 13 Bankruptcy is to give you a reasonable payment that will put you back on the right track and give you a set date when you know you will be out of debt.
Who is the Chapter 13 Bankruptcy Trustee?
The Chapter 13 trustee is hired by the Federal Government. The Chapter 13 Bankruptcy trustee collects money from debtors who have been approved for a Chapter 13 Bankruptcy restructuring plan and distributes the payments to the creditors.
Is a Chapter 13 the same as those “debt consolidators”?
Bankruptcy can help you get your life back. You may have seen advertisements for companies that do “debt consolidation”. A Chapter 13 Bankruptcy is very different. The private “debt consolidators” try to get your creditors to agree to a repayment plan. The creditors have no obligation to work with these private companies. If the private companies are late making a payment on your behalf, or if a payment gets lost in the mail, the creditors can charge you penalties and late fees. This means that if you use a private debt consolidator you could end up owing more money than when you started. In contrast, if the creditors are being paid through a Chapter 13 Bankruptcy plan then they may not charge for late fees or penalties.
A Chapter 13 Bankruptcy is a procedure administered by authority of the Federal Government. It is not a negotiation with the creditors. They are forced to take payments provided by the plan. If the creditors do not comply or if they fail to file their paperwork to be part of the Chapter 13 Bankruptcy then they get nothing. The Chapter 13 Bankruptcy Court does not beg the creditors to participate. The Chapter 13 Bankruptcy will dictate to the creditors what they will get.
What is the difference between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy?
A Chapter 7 Bankruptcy will get rid of all of your debts in one procedure. A Chapter 13 Bankruptcy will force your debts into a repayment plan. Why should you choose a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy? A Chapter 7 Bankruptcy is probably better if you qualify for it. The problem is that not everyone qualified for a Chapter 7 Bankruptcy.
In order to determine if you qualify for a Chapter 7 Bankruptcy the Court will look at your income (what you make) and your assets (what you own). If your income is unusually high then the Court may not allow you to file for a Chapter 7 Bankruptcy. In order to determine if your income is too high they will look at your household income for the prior six months. They will then compare that income to the average income for a family of your size. They will also take into account any special expenses you have, such as child support, medical expenses and school.
In determining if a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy is right for you, your Bankruptcy lawyer will also need to look at your assets. In a Chapter 7 Bankruptcy you can usually keep your house, cars and personal goods. However, there are limits to this. If you have a large amount of equity in your house (i.e. if you could sell it for a very large profit) or if you have very valuable personal goods, you may want to file a Chapter 13 Bankruptcy. Under a Chapter 13 Bankruptcy your possessions are protected no matter how much they are worth. Even very expensive assets can be kept under a Chapter 13 Bankruptcy.