Filing bankruptcy can help you eliminate your debt and get a fresh start. It stops creditors from harassing you and allows you to keep your assets. It can help you and your family establish a solid financial foundation for a prosperous and debt-free future. Below is a brief discussion of some of the most common topics in bankruptcy.
Chapter 7 is the most common form of bankruptcy filed in the U.S. It is often referred to as liquidation or “straight bankruptcy”. It is ideal for those who own little property (other than their residence) as it is the most effective at wiping out debt. The Chapter 7 discharge eliminates credit card debt, medical debt, personal loans, and many other types of debt. In addition, most debtors get to keep all of their assets. Before filing a Chapter 7 bankruptcy, a debtor must pass a “means test”, showing that he does not have too much disposable income. A typical Chapter 7 bankruptcy case moves quickly and is over with in just a few short months.
Chapter 13 (generally referred to as reorganization) is for debtors with regular income who wish to reorganize their debts and fully or partially repay them in manageable monthly payments over three to five years. It is usually the best option for debtors who have a large amount of equity in their homes and don’t want to lose them through a Chapter 7 liquidation. Though Chapter 13 requires a plan to pay debts over a period of time, it does not require that all debts be paid in full. Many unsecured debts such as credit card and medical debt can still be wiped out. Under certain circumstances, even second and third mortgages on real estate can be stripped off and discharged. There is no maximum income requirement under Chapter 13, and the bankruptcy case lasts for the length of the plan, from 3 to 5 years.
The Automatic Stay is a powerful and effective tool to quickly stop almost any action against the debtor to collect a debt. When a bankruptcy petition is filed the stay takes effect immediately, placing the debtor and his property under the protection of the bankruptcy court. The stay can immediately stop most actions including foreclosure sales, repossessions, evictions, and law suits against the debtor. It is one of the most important provisions of the bankruptcy code and is often the prime reason for filing a bankruptcy case.
The Discharge is one of the primary benefits for debtors in a bankruptcy and is essential to the “fresh start” that debtors get at the end of the bankruptcy process. It stops creditors from attempting to collect debts that have been deemed discharged by the bankruptcy court. While many types of debt can be discharged through the bankruptcy process, certain debts such as child support, alimony, and in most cases, student loans cannot be discharged.
Secured debt is owed to a creditor that gives a loan for which the borrower pledges an asset as collateral. Generally, if the debtor/borrower defaults on the loan, the creditor has the right to take possession of the property. The most common types of secured debt are home mortgages and car loans.
Unsecured debt is owed to a creditor that gives a loan that is not connected to any specific property. If the debtor/borrower defaults on the loan, the creditor can only pursue the debtor personally, and not his property. The most common types of unsecured debt are credit card debt and medical bills.
Real Estate holdings play an important role in deciding whether to file a bankruptcy and which chapter to file. Most debtors who own only their own home keep their home through the bankruptcy, even in Chapter 7 “liquidations”. However, debtors who own additional real estate that they wish to keep are generally advised to file a Chapter 13 “reorganization”, so they can submit a plan to pay their debts (either fully or partially) through reasonable monthly payments over a period of up to five years.
Credit card debt is the most common type of consumer debt. It can almost always be wiped out in a Chapter 7 bankruptcy, and often in Chapter 13 as well. It is unsecured debt.
Medical debt is also one of the most common types of consumer debt in a bankruptcy case. It too can usually be wiped out in a Chapter 7 bankruptcy, and often in Chapter 13 as well. It is also unsecured debt.
Multiple Bankruptcy filings are allowed by the bankruptcy code and are very common. Amendments to the bankruptcy code in 2005 made it difficult to file multiple successful Chapter 7 cases as debtors are now limited to receiving one discharge every eight years. However, debtors can still file a Chapter 13 bankruptcy and obtain relief from certain actions by creditors. The rules for multiple filings are somewhat complicated so it is important that you disclose any prior bankruptcies to an attorney when considering a new filing.
Credit counseling and debtor education are requirements that must be met under the bankruptcy code. In order to file a new petition debtors must show that they received credit counseling from a credit counseling agency approved by the U.S. Trustee’s office within the 180-period prior to the date of the bankruptcy filing. In order to receive a discharge of debts, debtors must show that they participated in a debtor education course after the filing of the bankruptcy petition. Both the credit counseling and debtor education courses can usually be taken in person, on the phone, or online and typically last between one and two hours.