About Bankruptcy...

Chapter 7 Overview

Chapter 7 of the United States Bankruptcy Code, also often referred to as a "Liquidation Bankruptcy", is designed to provide a Fresh Start for individuals who are so overwhelmed with debts that they are unable to repay all of their creditors without significant hardship. While most assets of Debtors contemplating Chapter 7 may be retained by the Debtors, Chapter 7 does require that certain assets not protected by properly utilized statutory exemptions be liquidated for the benefit of creditors.

A Chapter 7 Discharge eliminates most of one's personal debts, to the extent that such debts are not reaffirmed. Reaffirmation agreements may be entered into which allow the Debtor to continue to be liable for secured debts and to retain the assets securing such debts (such as vehicles or homes encumbered by liens for which the debtor makes regular payments).

Not everyone is eligible to file for Bankruptcy under Chapter 7. There are several eligibility requirements that must be met under the 2005 revisions to the Code. However, despite many rumors, many people who would benefit from it are actually eligible to file for Bankruptcy protection under Chapter 7!

A typical Chapter 7 Bankruptcy normally takes approximately three to four months from the date of filing to the date of final discharge of claimed debts, although some cases may take longer. Once the case is filed with the federal court, creditors cannot contact the debtor or take any other action in order to collect from the debtor without court approval.

Chapter 7 may be a viable option for debtors with lower than average annual incomes who own few assets and whose debts are comprised primarily of the following:

• Credit Card Balances
• Medical Bills
• Civil Court Judgments
• Deficiency Balances

Chapter 13 Overview

Chapter 13 of the United States Bankruptcy Code, also commonly referred to as a "Reorganization Bankruptcy", is designed to allow debtors to reorganize their finances in order to ultimately repay at least a portion of their outstanding debts.

A Chapter 13 Bankruptcy involves a Repayment Plan that includes payment of all past due and ongoing current payments owed to secured creditors for the assets retained by the Debtor. Unsecured creditors usually receive at least a small portion of the debts owed to them, as well. While there is no asset liquidation in Chapter 13, the non-exempt equity value of a Debtor's assets must be contributed to non-priority unsecured creditors through the repayment plan amount.

The plan lasts for three to five years. Payments are made to a Chapter 13 Bankruptcy Trustee, usually through a withholding of the Debtor's wages equal to their disposable monthly income.

A Chapter 13 Debtor must have a regular source of income - at least enough to facilitate the repayment plan, as well as the Debtor's ongoing monthly living expenses.

Generally, for Debtors needing bankruptcy protection, Chapter 13 is most effective when one or more of the following conditions apply:

1) The Debtor wishes to prevent a foreclosure or repossession of an asset securing a debt due to arrearages that could feasibly be cured within a reasonable repayment plan with the elimination of or reduction in unsecured debt obligations.

2) The Debtor has non-exempt equity value assets that would be liquidated in Chapter 7, but for which they can feasibly pay unsecured creditors an amount equal to the non-exempt equity value in a reasonable repayment plan.

3) The Debtor is ineligible for Chapter 7, and still requires a bankruptcy solution to their financial problems.