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A bankruptcy is a federal court action which releases an individual from liability for certain types of debts. As part of the action, creditors can no longer attempt to collect the debt, and it’s a way of giving a debtor a fresh financial start.
For consumers, there are two primary types of bankruptcies: a chapter 7 and a chapter 13, which are named after sections in the bankruptcy code. A chapter 7 bankruptcy allows a debtor to discharge all or a portion of his or her unsecured debts. Under a chapter 7 bankruptcy, a debtor can give secured property back to a creditor if the debtor can’t afford it. If a debtor can afford to keep the property, he or she can keep it by reaffirming the debt. Once that happens, payments will continue under the contract.
After a chapter 7 bankruptcy is filed, a court-appointed trustee will watch over the case to see if there are any assets that can be sold for creditors. If you have an asset that has equity, and that asset can’t be exempted under state law, the asset can be sold to pay unsecured creditors.
The other primary type of bankruptcy for most individuals is a chapter 13. A chapter 13 is a type of reorganization, and is sometimes called a “Wage Earners Plan”. It allows debtors to protect some assets and to catch up on missed payments through a reorganization plan. It also allows debtors to come up with a plan to pay back creditors over a period of time. The plan is submitted to a bankruptcy judge. If it’s approved, a court-appointed trustee will administer the plan. The trustee collects the funds from the debtor and distributes the funds to creditors.
A chapter 13 can only be filed by individuals with sufficient income to pay the creditors, and there’s a cap on how much secured and unsecured debt a person can have. A chapter 11 may be available for people having more debt than allowed for a chapter 13. A big advantage of a chapter 13 is that it can be used to save a home from foreclosure, and can help debtors bring mortgage payments current over a period of time.
There are several types of debts that cannot be discharged in a bankruptcy. Some include debts for student loans, alimony and child support, some types of taxes, and debts for injuries to another person in some circumstances. Also, if you owe a secured debt – a debt which has been secured by a specific asset, like a car – the creditor may keep the right to seize the property, even after a bankruptcy discharge is granted. A debtor may choose to “reaffirm” the debt, and agree to remain liable for the money owed, even if the debt could otherwise be discharged.
Are you considering a bankruptcy? If so, you may be confused about which option is best for you and which steps to take next. Contact National Consumer Law Group today to learn more about your legal options. |