Chapter 7, sometimes called a “liquidation” or “basic” bankruptcy, will wipe out many of your debts within a relatively short period of time while still allowing you to keep limited amounts of personal property. In most cases a Chapter 7 filing will stop foreclosures, repossessions, wage garnishments, lawsuits, and end the substantial calls, letters and general harassment resulting from debt collection activities. It may not a permanent solution for stopping foreclosures and repossessions, and you should talk to us to understand why.
If you have primarily unsecured debt, usually in the way of credit cards, medical bills, and store cards, a Chapter 7 may be appropriate for you. It can also be effective against some older tax liabilities (over three years old). It is generally more appropriate for those who rent or have little equity in their home and cars. A Chapter 7 bankruptcy is usually faster and cheaper than a Chapter 13. It is much more powerful against creditors than debt management plans or debt settlement programs and will usually cost you substantially less money and offer results in less than four months. Although there are some income limitations that apply to Chapter 7 bankruptcies, we usually see if a Chapter 7 will fit because the attorney’s fees are lower and you do not need to make any monthly payments to the trustee.
Approximately one-half of our clients file Chapter 7 bankruptcies.
Chapter 13 bankruptcy is often referred to as a “reorganization” bankruptcy for debtors with regular income. In a Chapter 13, your debt is covered by a repayment plan lasting three to five years that pays a portion of your debts back over that period. This portion can be anywhere from 1-100% depending on the circumstances and your disposable income. A Chapter 13 bankruptcy may be appropriate for clients with higher income or more substantial assets that they do not want liquidated in a Chapter 7.
Chapter 13 is commonly used to catch up on back payments owed on homes and cars and to stop foreclosure and repossession. In many cases, the amount you will repay on your car can be “crammed down” to the current fair market value, and the payments you make can be stretched out over the entire plan repayment period. Depending on the current fair market value of your home, you may also be eligible to “strip off” completely unsecured second mortgages. This means that at the end of your repayment plan, the remaining balance of the stripped off mortgage is no longer secured to your home.
Chapter 13 plans can be fairly complex to calculate, and may depend on the valuation used for your assets and property, as well as calculations of your income and living expenses. We work diligently to ensure that your monthly payment to the trustee is fair and no higher than it should be according to the law.