An Overview of Chapter 7 & and Chapter 13

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to  as discharge or liquidation bankruptcy, is the  most common form of consumer  bankruptcy.Chapter 7 eliminates or discharges  most or all of your unsecured debt. This type of  Bankruptcy is also called a Debt-Relief  Bankruptcy, a Liquidation Bankruptcy, or  a Debt-Discharge Bankruptcy because assets will be liquidated in order to pay off as much debt as possible.

Once the assets are liquidated, then most debts will    be discharged. If you don’t have assets but have  substantial debts, you may still qualify for a No-  Assets Chapter 7. In a Chapter 7, unsecured  debt is dischargeable, allowing you to eliminate  credit card debt, medical debt, and other forms of consumer debt. Chapter 7 can stop harassing phone calls from creditors and allow your life to become manageable, allowing you to start over with a clean slate and build toward a future–free of debt.

Chapter 7 is ideal for debtors who are incapable of repaying debts, and who are eligible, meaning they can pass the means test. The means test went into effect with the 2005 changes in the bankruptcy laws, and it is used to determine if you have too much household income compared to the median income in California to qualify under the new bankruptcy laws. A 2005/2006 study showed that approximately 80% of past filers would still qualify today under the new law.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to keep your  property through a court-approved repayment  plan that allows you to reduce your debt payments  and make more manageable payment installments  over three to five years. Once the court determines  that you have completed the repayment plan, any  remaining debt is eliminated (discharged).

In a Chapter 13 bankruptcy, debtors pay down debt through a court-approved repayment or reorganization plan over three to five years. You use assets and future earnings to pay off creditors. At the end of the repayment plan, all debts associated with the plan are considered paid.

You lose no property in Chapter 13 bankruptcy, because you fund your repayment planthrough your income and you can still eliminate some of your debt. You get to keep all of your property, but you must obtain court approval for a repayment plan that states in detail how you are going to pay back your debts over the next three to five years.

Chapter 13 bankruptcy offers some unique advantages. For instance, it can bring fast solutions when you are behind or underwater on your home payments or if you have a second or third mortgage, and can no longer afford to pay your combined monthly mortgage payments. It can prevent foreclosure. And, perhaps most importantly, Chapter 13 allows you to the flexibility to retain your property while still paying off debt.