What is a Chapter 13 Bankruptcy?

For individuals, there are two common types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.  We discussed Chapter 7 bankruptcy in a previous post, but as a quick refresher, Chapter 7 bankruptcy is a liquidation bankruptcy that will allow a person to eliminate most of their unsecured debt such as credit cards, medical bills, and personal loans.

On the other hand, a Chapter 13 bankruptcy is a repayment plan.  People who file Chapter 13 bankruptcy are often behind on their house or car payments and want to keep their house or car.

As mentioned in the Chapter 7 bankruptcy post, some individuals may be required to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy if their income exceeds the amount allowed by federal bankruptcy laws.  You would need to visit our office for more detailed information on this bankruptcy law requirement.

In Chapter 13 bankruptcy, the repayment plan usually lasts 3-5 years, and monthly payments are made to the Bankruptcy Trustee.  In order to file a Chapter 13, however, you must show sufficient income to make your monthly payments to the Trustee as well as provide for your family as you normally would.

We encourage you to contact our offices for a free consultation to learn more about how bankruptcy can help you eliminate your debts.

What is a Chapter 7 Bankruptcy?

The two most common bankruptcies for individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 is a liquidation bankruptcy, while Chapter 13 is generally known as a repayment plan. We will discuss Chapter 13 bankruptcy at a later time. This post, however, will briefly explain how a Chapter 7 bankruptcy works.

In a Chapter 7 bankruptcy, a person can usually eliminate most of their unsecured debts. Unsecured debts include credit cards, medical bills, and personal loans that are not attached to some sort of tangible real or personal property. In other words, if there is a lien on a piece of property, then the debt is NOT unsecured — instead, it is known as secured property.

It is important to know that child support, alimony, taxes, and student loans generally cannot be wiped out in any type of bankruptcy.

Usually, a person who files Chapter 7 bankruptcy can keep their house and/or car, as long as they are not behind on the payments.

The most important part of a Chapter 7 bankruptcy is the “Means Test.” In 2005, when the bankruptcy laws changed, a limit was placed on the income that a person filing Chapter 7 bankruptcy can have. The income limit is determined by where the person lives and how many people are in the household. You will need to have your pay stubs for the last 6 months and will need to come into our office so that we can determine whether you are eligible for Chapter 7 bankruptcy.