The two most common types of bankruptcy filed by individuals or married couples are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 bankruptcy erases all or most of your debts, without a repayment plan, and in general allows you to keep most or all of your personal belongings. Chapter 13 bankruptcy is a reorganization of debts, creates a three to five year repayment plan, and also allows you to keep most or all of your personal belongings.
The “chapters” come from the United States Bankruptcy Code. There are benefits and drawbacks to both Chapter 7 and 13 bankruptcies. And in fact, both chapters offer many of the same benefits.
Chapter 7 Bankruptcy
Chapter 7 eliminates credit card debt, medical debt, and most unsecured debts. Unsecured debts are debts that are not backed by anything. Meaning they do not have property attached as collateral. Generally, it is the simplest and quickest form of bankruptcy. And takes roughly four to six months to complete.
The benefits of Chapter 7 bankruptcy include:
- Erases most unsecured debts: including credit card debt and medical bills.
- Stops harassing phone calls from creditors.
- Stops wage garnishments.
- Stops lawsuits filed by creditors.
- Depending on your specific situation you will most likely be able to keep your car and your home. It is more likely that you can keep your car or home if your payments are current and there is not significant equity.
The drawbacks of Chapter 7 bankruptcy include:
- Chapter 7 Bankruptcy cannot help you catch up on mortgage arrears or missed car payments (though Chapter 13 Bankruptcy can, see below).
- Filing for bankruptcy will affect your credit score – however, if you have already fallen behind on your debts, your score has likely already decreased.
- Student loan debts are not generally discharged.
- Depending on your specific case, you may still owe on some debts after bankruptcy, such as tax debts.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy creates a three to five year repayment plan. The repayment plan gives you a chance to catch up on mortgage arrears, missed car payments, back taxes, and other debts. To qualify, you must have a steady source of income, such as from a job, self-employment, a business, retirement income, or social security.
Chapter 13 has many of the same powers as Chapter 7, plus additional powers.
The benefits of Chapter 13 bankruptcy include:
- Stops wage garnishments, stops lawsuits filed by creditors, stops harassing creditor phone calls, and stops automobile repossession.
- Can stop foreclosure and allow a homeowner to catch up on mortgage arrears.
- In some cases, allows a homeowner to “lien strip” or eliminate a second mortgage.
- Creates an opportunity to catch up on missed car payments.
- Creates an opportunity to catch up on other missed payments, such as back taxes or child support payments.
- At the conclusion of the Bankruptcy, any remaining credit card debt, medical bills, or other unsecured debts, and some tax debts, are discharged.
The drawbacks of Chapter 13 bankruptcy include:
- Requires monthly payments to the Bankruptcy Trustee. We all understand that unforeseeable things happen. If a plan payment cannot be made, there are processes to address it.
- You cannot take out a loan while in Chapter 13 Bankruptcy without prior permission from the Bankruptcy Court.
- Student loan debts are generally not discharged.
- Depending on your specific case, you may still owe some debts after bankruptcy, such as tax debts.
Bankruptcy is a Powerful Tool
Both Chapter 7 and Chapter 13 are powerful tools to stop harassing phone calls, stop collection actions against you, and help you get out of debt.
At the Law Offices of Barbara B. Braziel we file hundreds of Chapter 7 and 13 bankruptcy cases every year. But our clients are never just a number. You will not be left in the hands of a paralegal. You will have access to your attorney throughout your bankruptcy case.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.