Chapter 7 vs. Chapter 13
What is the difference?
Whether you qualify to file a bankruptcy under Chapter 7 or Chapter 13 depends on many factors, including your debt to income ratio and the total amount of disposable income that you have, as well as equity in your assets. An important thing to understand during the bankruptcy process is your secured debts vs. unsecured debts. A secured debt is a debt like a home loan/mortgage. The creditor (bank) is secured, because if you default on your loan, the creditor can sell your house. When you're thinking of secured debts, you should think of mortgages, car loans, or, if you own real property, any debt that has been reduced to judgment. Unsecured debts are generally debts like medical bills and credit cards that have not yet been reduced to judgment. Rebecca will be able to determine which filing is best for you.
A Chapter 7 bankruptcy is commonly referred to as a "liquidation." This type of bankruptcy will get rid of most of your unsecured debts through a process called "discharge". Generally, for a first time filer, if your income falls below median income level in your state, you will qualify to file a Chapter 7. However, this may still not be the best choice for you if you have a significant amount of assets or equity in your assets. In a Chapter 7 bankruptcy, if you have money available or equity in assets available above and beyond the state determined exemptions, the Trustee will liquidate those assets to pay your unsecured creditors. Therefore, it's important to have an understanding of your debts and assets before filing.
A Chapter 13 bankruptcy is commonly referred to as a "reorganization." This bankruptcy requires you and your attorney to come up with a plan to pay your secured debts using all of your disposable income over a certain period of time that is no more than 60 months. This allows you to "catch up" on the debts you've fallen behind on over the plan period. Your unsecured debts will also be paid through this plan, through either a pro rata or percentage basis. Once your plan is confirmed, you will usually make payments to the Chapter 13 Trustee to disburse to your creditors. At the end of your plan, your debts should be current and your unsecured creditors will be discharged. This is a great option for those who have fallen behind and have been able to get back on their feet but just can't catch up.
Not filing bankruptcy at all.
There are some circumstances where bankruptcy won't help, or where bankruptcy may not be the best option for you. As an attorney who practices both creditor and debtor law, Rebecca is uniquely able to identify those situations and work with you to determine the best course of action for you.