Understanding different types of personal bankruptcy filings
By Barbara Craig, Attorney at Law – Torrance and the South Bay
The federal bankruptcy code is complex and can be confusing. One common question is about the differences in Chapter 7 bankruptcy filing vs. Chapter 13.
Chapter 7 Bankruptcy – eliminating your debts
Chapter 7 Bankruptcy is a complete elimination of your debts and affords people the opportunity to get a financial “fresh start”.
- Most debt can be discharged in a Chapter 7 bankruptcy.
- Any personal property that is not secured by a debt and/or not covered by the state or federal exemptions must be turned over to the bankruptcy trustee so it can be used to pay your creditors.
- Most personal property is exempt so this rarely happens. Discuss your circumstances with an attorney to determine the status of your property.
- You can keep property that is secured by a loan (house or vehicle) if the debt is reaffirmed.
- You must be current on the payments at the time of reaffirming the debt and continue to make the payments for the term of the loan.
- Chapter 7 bankruptcy is typically completed within four months from the filing date of the petition.
- All debts included in the bankruptcy petition are discharged except those which were reaffirmed.
Chapter 13 Bankruptcy – reorganizing your debts
Chapter 13 Bankruptcy is a reorganization of your debts and includes a plan to pay all or some of your debts over time.
- Chapter 13 plans allow you to keep your property, even if you are behind in your payments.
- You’ll need to pay your regular monthly payment to the creditor on time.
- You will also be required to make a monthly Chapter 13 plan payment, which goes toward the past due amount.
- When you have made all the payments on your Chapter 13 plan, your past-due debt is satisfied. You’ll then need to continue to make your scheduled payments until the end of the loan term.
- Chapter 13 Bankruptcy plans have a three- or five-year commitment period. The plan is based on your income and ability to repay the debt.
- A person who makes less than the median income of the county in which they reside will have a commitment of three years unless they can show the court that more time is needed to pay off the plan.
- A person who makes more than the median income will have a commitment of five years, but it could be reduced to three if they plan on paying 100% of the creditors, including all unsecured creditors.
- Many times, unsecured debt is discharged (eliminated) in a Chapter 13 Bankruptcy
- The amount of debt to be repaid vs. discharged is also determined by your income and financial ability.
Some debts cannot be discharged
Neither Chapter 7 or 13 Bankruptcy can eliminate all debts. For example, child support or alimony payments, federal student loans, certain IRS tax debts, or debts relating to DUI accidents caused by the debtor are not eligible for discharge. Discuss all of your debts with an attorney to determine whether they are eligible for inclusion in bankruptcy.
Which bankruptcy chapter is right for you?
The vast majority of individuals are eligible to file Chapter 7 Bankruptcy. But those who voluntarily file under Chapter 13 usually do so because they want to keep their home and get current on the past-due payments. Individuals with incomes exceeding the median level for the county in which they reside may need to file Chapter 13. Discussing your unique circumstances with an experienced bankruptcy attorney is the first step towards relief from the burden of excessive debt.
Are you wondering whether Chapter 7 or Chapter 13 Bankruptcy is right for you? Contact Attorney Barbara Craig to schedule a free bankruptcy consultation to discuss your individual financial concerns and find out which type of bankruptcy chapter is best for your unique situation. South Bay Bankruptcy Attorney Barbara Craig serves clients in Torrance, San Pedro, Lomita, Harbor City, Carson, Wilmington, Long Beach and other nearby communities.
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