CHAPTER 7

There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows the debtor to discharge most of their unsecured debts, such as credit card debt and medical bills. The downside to filing chapter 7 is the Trustee’s  job, primarily, is to take and sell non-exempt assets.  An individual might qualify for Chapter 7 income-wise, but may have too much equity in a house or car or other assets for the individual to find Chapter 7 to be a desirable choice.  If this is true, Chapter 13 should be explored.

CHAPTER 13

bankruptcy allows the debtor to reorganize their debts and pay them off over a period of three to five years. Chapter 13 offers benefits that Chapter 7 cannot provide. Chapter 13 can help a person keep their home and catch up on missed payments during the first 4 years of the case. In addition, a debtor’s entire car loan would be paid through the Chapter 13.  This makes Chapter 13 the more useful tool if the debtor is facing foreclosure or repossession. All Debtors in Chapter 13 would be required to pay off all taxes owed by the debtor, whether they are for income tax, personal property tax, sales tax, or for similar categories of taxes. This will help the debtor avoid having tax liens filed against their house or other property.  Debtors also have the opportunity to pay off past due child support, which may help the debtor stay of jail. Then, what I like to call the “junkie junk” debt, like credit cards, medical bills, payday loans and such will vary from case to case, based on the debtor’s ability to pay the creditors some money. If a particular debtor does not have the ability to pay any money to these unsecured creditors, the guidelines will determine that the debtor will have no “guarantee” to pay these creditors back at all. So many, many Chapter 13s have no guarantee to pay unsecured creditors. If the debtor successfully gets to the end of the 5 years, those junky junk creditors will be discharged just like in a Chapter 7 case. The remaining debtors who have some ability to repay unsecured creditors, may be required to pay anywhere from 1% all the way up to 100%.