Bankruptcies
Chapter 7 bankruptcy is a legal process designed to help individuals and families obtain a fresh financial start by eliminating most unsecured debts, such as credit card balances, medical bills, and personal loans. Often referred to as "liquidation bankruptcy," Chapter 7 provides relief for those who are unable to repay their debts and need a path toward financial recovery. Once a bankruptcy petition is filed, an automatic stay immediately stops most collection actions, including lawsuits, wage garnishments, repossessions, and creditor harassment. For many people facing overwhelming financial difficulties, Chapter 7 offers an opportunity to regain financial stability and move forward with confidence.
The Different Types of Bankruptcy we offer.
Bankruptcy involves addressing two main types of debt: unsecured and secured. Unsecured debt is not supported by collateral, such as credit card accounts, finance company accounts, medical bills, utility and cell phone bills, and certain income tax debts. Secured debt is backed by collateral, including items like vehicles, boats, furniture, certain installment purchases, and real estate. Chapter 7 and Chapter 13 bankruptcies, referred to as "consumer bankruptcies," each have specific requirements as well as distinct advantages and disadvantages. Consulting a professional can help determine which type is appropriate for individual circumstances.
Chapter 7
A simplified way to think about Chapter 7 Bankruptcies is that it is designed to entirely "wipe out" certain kinds of debts. Under Chapter 7 bankruptcy, also called liquidation, most unsecured debt can be completely eliminated. This is called a discharge. However, Chapter 7 bankruptcy does not deal with secured debts, such as car loans, mortgages, etc.
Chapter 13
This form of bankruptcy is particularly suitable for wage earners and individuals with consistent income, as it enables the development of a structured plan for partial repayment of unsecured debts while also addressing secured obligations. Chapter 13 allows debtors to reorganize payments over an extended period. In cases where a household has fallen behind on secured loans, such as mortgage or automobile payments, Chapter 13 typically offers up to five years to remedy the arrears. During this time, creditors are generally prohibited from initiating foreclosure or repossession proceedings, and the debtor receives protection under the United States Bankruptcy Code from late fees and accruing interest.
Eligibility for filing Chapter 13 requires the filer to have a regular source of income and total debts within specified limits. Upon approval by the Bankruptcy Court, both the debtor and creditors are bound by the terms of the confirmed Chapter 13 plan, which typically mandates repayment of a portion of outstanding debts (commonly around 5%) over a period of approximately five years. Payments are remitted to a trustee, who is responsible for distributing the funds to creditors according to the provisions outlined in the confirmed plan.
When filing Chapter 7 or Chapter 13, you can usually keep property like bank accounts, clothing, jewelry, furniture, your car, some home equity (up to $50,000 per owner), and retirement accounts—these are exempt. However, debts such as student loans, child support, alimony, criminal restitution, fraud-related debts, certain taxes, and other nondischargeable debts remain your responsibility.
Determining the appropriate type of bankruptcy for each client requires careful evaluation of individual circumstances. The court operates under strict rules and regulations that must be adhered to when filing a case. A thorough analysis of a client’s unique financial situation is essential to assess which form of bankruptcy may be effective. Additionally, in certain cases, the timing of the filing can be a critical factor. Mr. Poff, will collaborate with you to identify the most suitable chapter that aligns with both your objectives and the court’s requirements.
Bankruptcy and Foreclosure
In all but a small fraction of situations, bankruptcy can and will help stressed homeowners in several ways.
For example, one type of bankruptcy, a Chapter 13, can make it possible for homeowners who are several months or more behind on their mortgages to keep their homes by resuming the regular monthly mortgage payment and making a small additional payment to "catch-up" the unpaid balance over a five year period. This is possible because bankruptcy reduces the amounts a homeowner is required to pay on other, usually unsecured debts (credit cards, medical bills, loan company accounts, some taxes). Typically, those other debt balances can be reduced by up to 95%.
A Chapter 13 bankruptcy can also allow homeowners who are struggling with a home equity loan or second mortgage to substantially reduce the monthly note payment. Imagine reducing a $250.00 per month home equity line payment to $25 per month and paying it off completely in five years.
Alternatively, a Chapter 7 bankruptcy can simply "wipe out" all unsecured debts, making it possible for a homeowner, who is current or only slightly behind on a mortgage, to keep the home.
If a homeowner simply cannot afford or does not want, to keep the home, bankruptcy allows the owner to surrender the home to the lender without danger of a "deficiency" judgment. That means if the home goes into foreclosure and is sold for less than the balance of the mortgage, the homeowner is not required to pay the difference.
Bankruptcy eliminates the danger of a deficiency judgment, unlike a so-called "short sale" or "deed in lieu of foreclosure."
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