Bankruptcy | Chapter 7, Chapter 13

The world of bankruptcy is shrouded in mystery and negative preconceptions but fortunately for you, we are here to make the process as straight forward and understandable as possible. Many people have misconceptions about filing bankruptcy but the truth is, people from all walks of life find themselves in trouble and sometimes filing bankruptcy is their best option for a fresh start. It is not something you should be embarrassed or ashamed of or afraid of. In our experience, the most common reasons people file for bankruptcy are: un(der)-employment, suffering from the housing and credit crises, going/went through a divorce or some other traumatic life event such illness. These things can happen to anyone so don’t feel like you are in this process alone. We are here to help and relieve some that worry. Read below for some basic information on the common types of bankruptcy.

CHAPTER 7 Bankruptcy (liquidation)

Chapter 7 is the most common form of bankruptcy for individuals because it eliminates all eligible debt and allows you to hold onto that property that’s “exempted” by law.  It’s quick, easy, and relatively pain-free.  But as of 2005, filing for chapter 7 became a bit harder. Our job is to get you into a chapter 7 if we can (and you want), and to maximize these exemptions, while allowing you to hold on to as much property as is legally permitted.

CHAPTER 13 Bankruptcy (repayment)

Chapter 13 involves a payment plan where you pay back those debts that cannot be discharged and any unsecured debts using your disposable income. Upon the completion of your plan, the remaining debt will be discharged.

Why file chapter 13 instead of 7?

First, you might not qualify for a chapter 7.  Also, chapter 13 has some powerful tools not otherwise available in a chapter 7.  One example (among many) is that chapter 13 allows you to hold on to any asset you own – even if you’re behind on payments for it – as long as you can afford to now make the payments and maybe catch back up on any missed payments.  You can often greatly reduce your debt in a chapter 13, sometimes including a “secured” debt like a car payment.  Also, chapter 13 is generally viewed as better for your credit.  But chapter 13s are longer and more costly, since these plans run for either three or five years.  And only individuals – not businesses – are eligible for chapter 13 bankruptcies.

CHAPTER 11 Bankruptcy (reorganization)

This type of filing is typically reserved for businesses (think Chrysler), but individuals can also (and sometimes must) file for chapter 11.  For example, if someone has debts that exceed the limits of a chapter 13, their only option might be to file a chapter 11.  Don’t worry, the process isn’t nearly as daunting as filing Chrysler into bankruptcy.  And no one is going to call you Lee Iacocca (unless your name actually is Lee Iacocca).