Financial distress can happen to anyone. Often it is the result of things out of our control, such as job loss, illness or injury, or other unforeseen circumstances Bankruptcy attorneys can assist clients in getting a fresh start, and to stop the harassing calls, foreclosure, collections, lawsuits, and garnishments. Bankruptcy is a legal way to either discharge or reorganize debt while stopping lawsuits, garnishments, foreclosures, and harassing phone calls from creditors.
When a person’s debts are discharged in bankruptcy, he or she is relieved from personal liability for most debts incurred before the bankruptcy was filed and protected from future collection of those debts. The purpose of bankruptcy is to give you a fresh start and the bankruptcy code is interpreted by the courts to give effect to those words.
A Chapter 7, or liquidation, bankruptcy is a major type of bankruptcy proceeding. Individuals who file Chapter 7 are able to free themselves of dischargeable debt quickly through a bankruptcy discharge. A Chapter 7 bankruptcy is often the quickest way to get out of a difficult financial situation and get the weight of endless debt off your shoulders. Chapter 7 bankruptcy allows an individual to discharge, or erase, all unsecured debt. Unsecured debt includes credit cards, medical bills, personal loans, payday loans, repossession costs, deficiencies from foreclosures, and some taxes. The entire process of Chapter 7 bankruptcy usually takes only four months, and there is normally just one short hearing (with a bankruptcy trustee, not a judge) to attend. After the Chapter 7 bankruptcy is closed, the individual’s dischargeable unsecured debts are erased forever.
A person who files for Chapter 7 bankruptcy may exempt certain items from the bankruptcy. In most cases, the trustee allows you to keep your home, your car, your furniture, your household items, your retirement accounts, and most other assets. This depends completely on the value and equity in these assets and the exemptions that are used – this area can be complex. Most debtors keep everything in a Chapter 7 bankruptcy. If a client would have any risk of losing assets in a Chapter 7 filing, I always discuss Chapter 13 as an alternative to ensure that any assets are protected. However, many debtors use Chapter 7 bankruptcy to walk away from an underwater house without the danger of the mortgages suing them for the deficiency.
A Chapter 13, or “reorganization,” bankruptcy is the type of bankruptcy often used by individuals to discharge some or all unsecured debt (similar to a Chapter 7), while also reorganizing their debt through a Chapter 13 plan. Individuals who file Chapter 13 are able to keep all of their property by entering a repayment plan usually related to their disposable income. A Chapter 13 bankruptcy is completed in approximately three to five years. A Chapter 13 case offers many advantages for a filer – often a Chapter 13 bankruptcy can get rid of (“strip”) second and third mortgage liens on property, “cram down” car loans to the value of the car, and increase the chances for a bank to modify a loan. If a debtor is behind on mortgage payments, a Chapter 13 bankruptcy allows eligible debtors to stay in their homes. All remaining unsecured debt is erased forever at the successful conclusion of the Chapter 13 plan. A Chapter 13 discharge is somewhat broader than a Chapter 7 discharge, because taxes, student loans, and other debts may be dealt with through the plan.
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