Bankruptcy Information

CHAPTER 7

A Chapter 7 bankruptcy will usually eliminate all of a debtor’s unsecured debts – things like credit cards or personal loans. In Chapter 13 cases, debtors are required to pay all of their excess income each month into a pool that is split up by their creditors. After 3 to 5 years, whatever unsecured debts remain are discharged in a Chapter 13 case.

Chapter 7 is not designed to save property where payments have not been made and foreclosure has begun. However, Chapter 13 can help in that exact situation.

The job of the Chapter 7 Bankruptcy Trustee is to seize any non-exempt property and divide up those proceeds among creditors. There are many state and federal exemptions that usually protect the majority of household items and often a home or first car from seizure. Debtors with boats, motor homes, second houses or other property subject to seizure may prefer Chapter 13 bankruptcy to protect their property from being seized.

CHAPTER 11

A Chapter 11 Business Bankruptcy is a legal process by which a business may declare bankruptcy but continue to operate under the direction of a court-appointed trustee. This process is called “reorganization,” because the trustee reorganizes the business to be more efficient and to be able to pay the creditors of the business. The bankruptcy court may also reorganize how the business pays all or part of its debts. Chapter 11 bankruptcy is usually sought and granted in the case where the value of the business is greater than the sum of its assets; in other words, the business has a significant amount of goodwill as a “going concern” which would be lost if the business were sold or liquidated.

In many cases, a business may re-emerge from Chapter 11 and continue to operate normally. In other cases, the reorganized business can be sold after some period of time.

CHAPTER 13

In a Chapter 13 case, an individual with regular income repays all or a portion of his or her debts over a three-to-five-year period through a monthly payment plan approved by the Bankruptcy Court. For that reason, a Chapter 13 case is sometimes referred to as a “wage-earner plan.” Also, many sole proprietors file Chapter 13 plans to restructure how their debts are repaid. The Chapter 13 Trustee does not take possession of non-exempt assets but supervises the case and administers the payments to creditors under the Chapter 13 plan. In exchange for these payments, you can keep property you have which a trustee would sell from under you in chapter 7 bankruptcy. So in chapter 13, you can:

  • Save your house
  • Keep your car
  • Keep your property
  • Save your business

The amount of your plan payment and the length of your plan depend on a number of factors. One factor is how much disposable income you have left over every month after you pay your living expenses. A second factor is how much you are behind on your secured debts (e.g., mortgage, car payment, etc.)

The most common reasons for consumer bankruptcy are (a) loss of a job or long-term layoffs; (b) loss of overtime hours; (c) lengthy illnesses and large medical expenses; (d) death or disability of a spouse; (e) separation, divorce and marital problems; (f) seriously over-extended credit; and (g) large unexpected expenses.

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