Bankruptcy Info

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Chapter 13 Bankruptcy (Reorganization):

A Chapter 13 reorganization bankruptcy helps you hold on to some or all of your non-exempt assets by giving you the opportunity to reduce your debt payments and pay off your past due debts over a three-to-five year period. Assuming you make all of your payments on time, you will be protected from your creditors during this time.

You can also use Chapter 13 to eliminate some debt and keep your secured debts if you want to hold on to the assets that collateralize those debts. When you file for Chapter 13, your bankruptcy attorney will prepare your debt reorganization plan, which will spell out exactly what you intend to do about each of your debts.

Bankruptcy law requires that your plan treat certain kinds of debts in a particular way. For example: You must pay the full amount of your priority debts during the term of your reorganization plan - three to five years. Priority debts include unpaid income taxes, unpaid property taxes, past due child support, and spousal support (alimony). With the exception of your mortgage loan, you have two options for what to do about your secured debts.

You can: Keep the asset that secures a debt by paying your creditor the asset’s market value plus interest during the term of your reorganization plan. You and the creditor will have to agree on the asset’s value, which sometimes can be a stumbling block to pursuing Chapter 13. You must pay your unsecured creditors at least as much as they would receive if you filed for Chapter 7 rather than for Chapter 13. Examples of unsecured debts include credit card debts, unsecured loans, medical bills, utility bills, and so on.

After your reorganization plan has been filed with the court, you will have to attend a creditors’ meeting. At the creditors’ meeting, the bankruptcy trustee assigned to your case will ask you questions to make sure that you have been honest about your assets and your debts and to determine if you can afford to pay more than your reorganization plan indicates. Your creditors can ask you questions about your finances as well. A confirmation hearing will take place sometime later. At the hearing, the judge will consider any objections your creditors may have to your plan and will decide what to do about them. For example, the judge may require you to make specific changes to your plan as a result of those objections before he or she will approve it.

Once it has been approved, you must pay your debts according to the plan until you have completed it. At the point the judge will discharge or erase any remaining debts that your owe except fro any debts that cannot be discharged, and your bankruptcy will be over. You will have to pay the debts that are not discharged.

Chapter 7 Bankruptcy (Liquidation):

Filing for Chapter 7 bankruptcy may be appropriate if you have so much debt relative to your income that you can’t afford to pay what you owe, even if your creditors agree to reduce the amounts you must pay to them each month. When you file for Chapter 7, the bankruptcy trustee will take all of your nonexempt assets, sell them, and use the sale proceeds to pay your debts. Since there will probably not be enough money to pay everything that you owe and since your secured debts take priority over your unsecured debts in bankruptcy, your unsecured creditors will probably receive little or nothing.

At the end of your Chapter 7 bankruptcy, the judge will erase or discharge all of your unpaid debts, which means that you won’t have to pay them. However, you will have to pay any debts that cannot be discharged or that are associated with any nonexempt assets you are keeping. For instance, child support, spousal support, student loans, criminal penalties and most taxes generally cannot be discharged.

Advantages:

• You have to repay very little, if no money to your creditors.
  
  
• You can start fresh.
  
  

Disadvantages:

• A bankruptcy can remain on your credit report for 7-10 years.
  
  
• A bankruptcy on your credit report could delay the purchase of a home or car and result in less favorable credit terms and higher interest rates for a time.
  
  

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