bankruptcy

A “fresh start”.  What does that mean?  Under federal law, honest debtors may be entitled to a fresh start if they qualify for one or more Chapters of bankruptcy.  Chapter 7 is commonly referred to as a liquidation chapter.  If you qualify, you may be entitled to a discharge that extinguishes your legal obligation to pay some or all of your debts.  In return, a trustee will recover non-exempt property from you and sell it for the benefit of your creditors.  Often times, all of the debtor’s property is exempt.  This is referred to as a “no asset” case.   

Does that mean I get a free car or a free house?  No.  There are different types of debts.  Unsecured debts are those that the creditor has no security interest in property that is associated with that debt.  Credit cards and medical bills are frequent examples.  Secured debts are different, in that the creditor holds a security interest in property that is associated with the debt.  If you owe money on your car, you may be able to reaffirm that debt and keep the car, but that debt is not discharged. This decision though is subject to Court approval as it could interfere with your fresh start.  You may also have the option to give the car up and have the debt legally extinguished.  Your home, if there is a mortgage, is treated similarly in most cases.   

Chapter 13 is a “reorganization” chapter and for debtors who have regular income and just need to “catch up”.  In a Chapter 13, the debtor makes regular payments to the trustee who distributes those payments for the benefit of creditors and then at the end of the plan, the debts may be discharged.  The amount each of those payments is determined by how much is debt is owed and the regular disposable income of the debtor.  You may be asking yourself now, why would I want that, if Chapter 7 has no such associated payments?  Well, the answer is that some debtors have too much regular income to qualify for Chapter 7 or have non-exempt assets they seek to protect.   

It is important to realize that each debtor’s financial situation is unique and different Chapters may be better for different situations.  Consultation with a bankruptcy attorney is available at no charge.  Click here to fill out our intake form and to schedule a consultation.  Click here to view our “Frequently Asked Questions” page for more generalized guidance.