A Chapter 7 bankruptcy, also known as a liquidation, is appropriate in situations where the debtor has little secured debt or does not plan to keep assets. Although you can shelter a certain amount of equity in your home and other secured property, Chapter 7 =typically involves simply discharging all debt, releasing all assets to creditors, and starting over. A bankruptcy attorney will usually advise a Chapter 7 if you have little to no secured debt and few non- dischargeable debts.
A Chapter 13 bankruptcy, also known as a wage-earner plan, is designed for situations where there are larger amounts of secured debt, the debtor is employed, and funds are available to make payments to a bankruptcy trustee. In this type of bankruptcy, an agreement is reached between the court, the debtor, and the creditors which allows the debtor to send weekly or monthly payments to the court which is distributed to the creditors.
Generally, the secured assets can be kept by the debtor as long as the terms of the plan are met. Most Chapter 13 plans last for extended periods of time, often up to four years, during which time the court takes charge of the debtors payments and satisfies the creditors. Once the debts are paid, the debtor receives a discharge. Debtors can also reaffirm certain debt under a Chapter 13 plan, meaning the debtor agrees to keep making payments to the creditor outside the plan, although this must be approved by the court.
There are other types of bankruptcies, such as Chapter 11 or 12, which are appropriate for businesses, and involve a much greater investment of time by all parties in order to equitably assign assets. These types of bankruptcies are generally long-term agreements and must be crafted by an experienced bankruptcy attorney.
The most important thing you can do when contemplating bankruptcy is to get good advice from a reputable attorney. State statutes also affect the implementation of bankruptcy law, so a state-licensed attorney will be able to advise you on your particular situation. Although many websites advertise “do-it-yourself” bankruptcies, these seldom work as they are not specific to the state and situation in which you find yourself. There are many intricacies that can change the action of your bankruptcy, and only a qualified bankruptcy attorney can effectively advise you.
The bankruptcy process is a government sanctioned means for consumers to get a fresh start and regain their financial footing. The problem is that filing bankruptcy has become complicated to the point where a filer acting alone may not realize all the benefits which are available through either a Chapter 7 or a Chapter 13 bankruptcy. For that reason alone, it is imperative that anyone considering a bankruptcy filing in , consult with a qualified bankruptcy attorney, first to determine the best path forward and then to get the best result possible in the outcome of the bankruptcy.