Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Differences
What is Chapter 7 Bankruptcy?
Has your debt overwhelmed you? Maybe you lost your job, or have suffered a loss of income some other way? Perhaps, your Adjustable Rate Mortgage has skyrocketed with no end in sight?
No matter what has brought you to this point, you find yourself considering debt relief options. The internet is full of ideas, ways to help you fix your problem. Some of these are good honest solutions, some are not. Some of the so-called “debt relief ” programs are quite costly and do little to solve your overall debt problems. Before you decide on the option that is right for you, you ought to consult with an attorney about the available options including bankruptcy.
So what bankruptcy options are available?
For an individual (or married couple) consumer there are two (2) options provided under the Federal Bankruptcy Code: Chapter 7 and Chapter 13. Both of these bankruptcy options have requirements that must be met prior to filing. For instance, you must attend an approved Pre-bankruptcy Credit Counseling Interview (in person, phone or internet options available). You must also meet certain income and expense qualifications. (Review) For the specifics you should consult with a bankruptcy attorney.
Chapter 7, what does it do?
A Chapter 7 bankruptcy is also known as a liquidation bankruptcy. Under a Chapter 7, your assets are subject to scrutiny by the Bankruptcy Trustee. The Trustee may liquidate or sell any asset or property which is not exempt or encumbered by a significant security lien (home mortgage, car loan, etc.), and use the sale proceeds to pay your unsecured creditors. (More on Chapter 7) Does this mean that I lose all of my property? No. There are exemptions available under State Law, and/or Federal law, which allows you to keep certain property up to certain exemption values. For instance, under current Tennessee law most types of personal property are exempt up to a total of $10,000.00 per individual Debtor. There are also exemptions for clothing, books, and of course limited exemptions for your homestead (primary residence). Speak to an experienced bankruptcy attorney about your specific assets and what may be exempt.
Chapter 7 Offers Complete Erasure of Unsecured Debt
In a chapter 7 bankruptcy you can have all of your unsecured debt (credit cards, personal loans, medical bills, etc.) discharged (wiped out) forever. You can also choose to surrender your house back to the mortgage company and have any deficiency (difference in sales price and mortgage balance) discharged. In fact, you can surrender any secured asset (car, boat, motorcycle) and have even the secured debt discharged. Or you can, under certain circumstances, choose to reaffirm such “secured” debts. Of course, you would need to be current and in good standing with that lender, as the lender must agree to allow you to reaffirm the loan. That is, you may be able to take the loan out of bankruptcy and continue your original contract.
There are certain debts that can not be discharged such as child support, taxes, federally guaranteed student loans, etc. There are also limitations on discharge of certain credit card purchases or cash advances. A bankruptcy attorney needs to review your debts and advise you in these areas.
Obviously, this blog, nor any other internet site can answer all of your questions. Nor is this post a substitute for legal advice tailored to your individual situation. Contact a bankruptcy attorney for a review of your situation and legal advice.
Part 2 of this Post : Chapter 13, what does it offer?