Bankruptcy Basics

  • Chapter 7 Bankruptcy

    Chapter 7 bankruptcy is one of the most common types of bankruptcy. However, the Bankruptcy Abuse Prevention and Consumer Protection Act, that took affect October 17, 2005, requires many cases that once were eligible for Chapter 7 relief to be filed as Chapter 13 bankruptcies. The new law set income limits for filing Chapter 7 bankruptcy. This will require debtors to pay back a portion of their debts through a Chapter 13 plan. Additionally, debtors will be required to complete a course in financial management prior to getting a Chapter 7 discharge.

    Chapter 7 is typically referred to as liquidation bankruptcy, but it does not require liquidation of all assets. Harris-Courage & Grady PLLC will file on your behalf a Chapter 7 bankruptcy petition in federal bankruptcy court. This immediately stops all creditors from contacting, billing or suing you or trying to attach your wages. Instead, your creditors will work through a trustee, with whom you must meet. The trustee will assess your income and any non-exempt assets. We will represent you at this meeting and will handle all negotiations with the trustee.

    Most assets, including equity in your home and car, furniture, bank accounts and pensions up to certain caps, are exempt from creditors. You may continue to pay your mortgage and car loans, if you choose, or you can give up any right to those assets, and the debt, too. Certain debts, such as child support, alimony, student loans and some taxes cannot be discharged.

    The federal judge will then review the petition and any objections that are filed and discharge your debts. The entire process usually takes a few months. Once discharged, you can never again be asked to pay those debts. You start fresh, with a clean slate.

    Chapter 13 Bankruptcy

    Chapter 13 bankruptcy involves rehabilitation and government protection and is designed for people with a regular income and those whose income exceeds that allowed under Chapter 7.

    Chapter 13 allows you to keep valuable assets. Harris-Courage & Grady PLLC tailors a plan to meet your financial needs and desires that will structure repayment of your debts over a three- to five-year period. This plan allows you to “catch up” on your overdue payments by paying a percentage of what you owe. Under the plan, you pay an appointed trustee, who then pays your creditors. The amount of repayment is determined by the type of debt and your income. Debts subject to a Chapter 13 repayment plan can include mortgages, car payments, alimony and child support, taxes, high-interest loans, credit cards.

    While the plan is in effect, your creditors cannot harass or sue you or attach your wages. Chapter 13 filers must complete payments under the plan in order for their debts to be discharged.