When you are struggling to pay your bills, a bankruptcy may be your best option. The automatic stay is one benefit of filing bankruptcy. With the automatic stay, creditors must immediately stop all collections when an individual or business files bankruptcy. This includes sending collection letters, garnishing wages, repossessing vehicles and filing lawsuits. In a bankruptcy, you can either eliminate your debt or establish up a payment plan through the bankruptcy court. Different bankruptcy chapters offer different options.
Chapter 7 Bankruptcy (Liquidation)
In a bankruptcy case under chapter 7, debtors file a petition asking the court to cancel debts. The basic idea in a chapter 7 bankruptcy is to cancel (discharge) your debts in exchange for your giving up non-exempt property. The bankruptcy court allows you to keep a certain amount of property. The property you are allowed to keep is called exempt property. In most chapter 7 bankruptcy cases, all of a debtor’s property will be exempt. If a debtor has non-exempt property, a chapter 7 trustee will sell the non-exempt property and distribute proceeds to creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
If you are interested in filing a chapter 7 bankruptcy petition, contact our office to see if you qualify. We will review your income received during the last six months, your monthly expenses and your assets to determine if a chapter 7 bankruptcy is the right option for you.
Chapter 13 Bankruptcy (Reorganization)
In a chapter 13 bankruptcy case, debtors file a “plan” with the court showing their debt will be paid. Most chapter 13 plans last 3 to 5 years. One benefit of filing a chapter 13 case is that it may allow you to keep valuable property such as a home and car, which you might otherwise lose because of a foreclosure or repossession. In order to file a chapter 13 bankruptcy, you must be able to afford to pay something to your creditors. The amount you pay will be based on your average monthly income and expenses. If you are filing the bankruptcy to become current on your mortgage or car loan, your plan payment will be at least as much as your regular monthly payments on your mortgage or car loan, plus an extra amount to get caught up on the amount you have fallen behind.
You should consider filing a chapter 13 plan if you
own your home and are in danger of losing it because of money problems;
are behind on debt payments, but can afford to catch up if given some time;
have valuable property, which is not exempt, but you can afford to pay creditors from your income over time.
In a chapter 13 bankruptcy, debtors receive a bankruptcy discharge canceling the remaining balance of most debt after you complete your payment plan.
Chapter 11 Bankruptcy (Reorganization or Liquidation)
Most chapter 11 bankruptcy filers are businesses. In a chapter 11 bankruptcy, the debtor can choose to liquidate the business and pay creditors with the proceeds or the debtor can reorganize debt by preparing a payment plan that details payments to creditors.
Preparing for Your Bankruptcy Appointment
In order to receive a bankruptcy discharge, you must disclose information about your assets, income and expenses to the bankruptcy court. Use the bankruptcy checklist to gather documents necessary for providing information to the bankruptcy trustee. A completed bankruptcy questionnaire will provide our office with the information required to prepare your bankruptcy petition.
DOWNLOAD YOUR BANKRUPTCY CHECKLIST - A list of items you must bring to your appointment.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.