Bankruptcy

Chapter 7—is called a “liquidation bankruptcy” in which a consumer seeks to have the bankruptcy court to discharge most of the debts that the individual consumer owes. To do this, the bankruptcy trustee (a person appointed by the court to oversee the case of a person who has filed for bankruptcy) can sell any non-exempt property, distributing the proceeds of their sale to your creditors. Property that is exempt from being sold in this manner includes among other things, the following, up to a certain dollar amount: your home, some personal property, household furnishings, tools of trade, a motor vehicle and employee & retirement benefits.
New changes in the law now require that consumers with income higher than the median income for a family their size, in their state, are no longer allowed to file under Chapter 7 if their disposable income (income remaining after paying for certain allowed expenses and debts) would allow them to repay some portion of their unsecured debt over five years.
Advantages:
•A popular choice among those who qualify for it, as it does not require you to repay any portion of your debts.
Disadvantages:
•Will not help you keep your home safe from foreclosure if you are behind on your mortgage payments unless you make up for the entire past due amount right away and the equity you have in your home does not exceed the amount of the exemption available to you.
• You can’t receive a discharge under Chapter 7 if you have had a Chapter 7 discharge in the last 8 years or a Chapter 13 discharge in the last 6 years.
Chapter 13—is usually referred to as a “reorganization bankruptcy” in which you file a plan with the court, proposing a repayment plan over a term of three to five years in which you will repay your creditors for all or part of your debt. The amount you will have to repay is dependent upon the amount of money you earn, how much you owe to creditors and how much your unsecured (for example, credit card) creditors would have received if you had filed under Chapter 7. In order to file for Chapter 13, you must have a source of income which is reliable that can be used to repay at least some portion of your debt. There are also specific limits as to how much your unsecured and secured debts may be in order to file for Chapter 13.
Advantages:
• Unlike Chapter 7, you do not have to give up any property to be sold to satisfy your debts as you will be working out a repayment plan.
• Chapter 13 was designed to help stop foreclosures. When you file under Chapter 13 (rather than Chapter 7) the bankruptcy proceeding stops the foreclosure and can require the lender to accept your repayment plan.
Disadvantages:
•You may have to repay a portion of your unsecured debts—like your medical bills—but once your repayment plan is complete, any remaining amounts owing will be discharged and you will not be required to repay any more toward them.
• All of your disposable income (income remaining after paying your living expenses) must be put toward your repayment plan. A change the new law brought about now does not use your actual living expenses, but the IRS dictated expense amounts if your income is higher than the median amount for your state. Often times these IRS amounts are less than what your actual expenses might be.
• You can’t receive a discharge under Chapter 13 if you have had a Chapter 7 discharge in the last 4 years or a Chapter 13 discharge in the last 2 years.