Chapters of Bankruptcy
Under the US Bankruptcy Code, there are six different types, or chapters, of bankruptcies:
- Chapter 7: Liquidation
- Chapter 13: Repayment Plan
- Chapter 11: Large Reorganization
- Chapter 12: Family Farmers
- Chapter 15: Foreign Cases
- Chapter 9: Municipalities
Some of these are uncommon. Most individuals will file Chapter 7 and 13 bankruptcy. Let’s take a look at these.
Chapter 7 Bankruptcy
Chapter 7 is known as a “liquidation” bankruptcy. The court appoints a trustee to administer the case in Court after I and my staff have identified all of your assets, debts, income, and expenses. Usually, none of your assets are liquidated. In the minority of cases, a few of your assets may be sold, in order to pay some debts. Mortgages are usually not changed. Certain assets (e.g. retirement accounts) are not counted as assets of the estate and are safe for you to keep.
Note: Most people who file Chapter 7 have what is called a no-asset case. That is they have no assets that can be liquidated. You will not lose property even though you discharge debt.
After any non-exempt assets are liquidated, unsecured debts are discharged. Essentially, this means you are free of them. You must still pay a secured debt, such as car loans and house mortgages. Other debts like student loans, child support, and most taxes also must be paid back.
A Chapter 7 case can be completed within four to six months of filing, offering a relatively quick resolution to disabling debt.
Chapter 13 Bankruptcy
Under Chapter 13, my staff and I will develop a plan to repay a portion of the debts you owe to unsecured creditors. You will propose a plan to make installment payments to creditors over the course of three to five years. This plan must be approved by the court. During the repayment period, creditors cannot attempt to collect debts. After the case closes then the unpaid remainder of debts treated in the Plan are canceled.
One of the major benefits of Chapter 13 is that you can save your home from foreclosure and make a plan for repayment over time. You can also extend the repayment period for secured debts over the life of your Chapter 13 plan, giving you more time to catch up. This often lowers the monthly payments as well. In many cases, any co-signers you have will also be protected during your time in bankruptcy.
Which option is best for you? It depends on a variety of factors. Get in touch with Robert P Laney to discuss the pros and cons of each type of bankruptcy, as well as the consequences you will face. We are here to help you navigate this difficult time and get started on a path to a more secure financial future.