THE NUTS AND BOLTS OF BANKRUPTCY
Bankruptcy is designed to give debtors a fresh start by discharging their debts. A
discharge removes the obligation to pay a debt. There are two commonly used and
fundamentally different types of consumer bankruptcy, referred to as Chapter 7 and
Chapter 13. The essential features of each are outlined below. At the time of your
free consultation, we will discuss your options and, if bankruptcy is one of them,
we will discuss details of each type more specifically in the context of your
particular situation.
Chapter 7
The object of a Chapter 7 bankruptcy is to obtain a quick discharge of all of your
unsecured debt, except those unsecured debts that are specifically excluded under
the Bankruptcy Code, such as alimony, child support, federally backed student loans
and some taxes. An unsecured debt is a debt that does not rely on any security that
can be reclaimed by the creditor or foreclosed in the event the debt is not paid.
Typical unsecured debts include credit card and medical bills. Depending on the kind
and value of your unsecured assets, the bankruptcy law may allow you to keep some or
all of these assets, and require that you give up the assets the law will not permit
you to retain. The liens on secured debts, such as the mortgage on your home and the
loan showing as a lien on the title of your car, will remain after bankruptcy is
over. If you do not make regular payments on secured debt, the creditor can take the
collateral.
Chapter 13
A Chapter 13 bankruptcy usually involves a three or five year plan where your net
income which exceeds your reasonable and necessary costs of living, are paid over to
your creditors on a monthly basis. All of your secured debts must be current at the
conclusion of the plan, and any debts owed which are unsecured at the conclusion of
the plan will be discharged, unless the Bankruptcy Code does not allow a discharge
on a specific type of debt. Debts which many not be discharged include alimony,
child support, federally backed student loans and some taxes.
Immediate Advantages
Under whichever chapter you file, there are immediate positive results. The
"automatic stay", which is available to most filers, will stop most debt collection
activity, including litigation, immediately on filing your petition for bankruptcy
protection. (Foreclosure litigation, however, will likely be permitted to resume, as
may other litigation if permitted by the bankruptcy court.) The automatic stay will
prohibit creditors from contacting you for the purpose of debt collection, virtually
eliminating the bombardment of harassing phone calls. Utility services previously
terminated may be restored, and future termination of these services may be
prevented.
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