Bankruptcy is a legal proceeding that provides you with a financial do-over by eliminating debt and protecting you from creditors.
What Can Bankruptcy Do for Me?
• Stop debt collection;
• Eliminate debt (e.g. mortgage, car loan, credit cards, medical);
• Stop foreclosure and modify your home loan;
• Stop evictions;
• Prevent vehicle repossession;
• Stop garnishment (wage & bank account);
• Reinstate or prevent driver’s license suspension;
• Keep utilities turned on;
• Challenge fraudulent creditors; and
• Discharge student loan debt (rarely available).
What Bankruptcy Cannot Do
• Eliminate “secured” debt (e.g. car loans, home mortgages, Badcock purchases) without negotiating repayment or surrendering the property. However, Bankruptcy eliminates your other debts so you can pay.
• Discharge special treatment debts such as child support, alimony, court restitution orders, criminal fines, and most taxes.
• Discharge debts that arise after bankruptcy has been filed.
• Protect cosigners on your debts. Cosigners sometimes remain legally obligated for the debt.
What are the Types of Bankruptcy?
Most people filing bankruptcy will want to file under either Chapter 7 or Chapter 13. Either type of case may be filed individually or by a married couple filing jointly without minimal additional expense. There are four primary types of Consumer Bankruptcy:
• Chapter 7 is known as “straight” bankruptcy or “liquidation” and discharges your debts, both secured, such as houses & cars and unsecured debt, like credit cards, medical debt, personal loans and court judgments. It is reserved for people whose household income is below a specific limit. Generally, Chapter 7 allows you to keep essential property and secured property which you can afford to pay.
• Chapter 13 typically used as an alternative to Chapter 7 and is called “reorganization”. We often refer to it as a light at the end of a personal/family’s financial tunnel. In Chapter 13 you can pay a portion or all your debts over a period of years, based upon what you can afford. It is an option if you don’t qualify for Chapter 7, need to make arrangements to catch-up/reorganize your secured debts (e.g. houses & cars) or you require more than your essential property to meet your family needs.
• Chapter 11, known as “reorganization,” is used by businesses and individuals whose debts are very large or whose finances are sophisticated. It tends to be used by business-people who want to reorganize their obligations and allow their business to survive.
A Chapter 11 case begins with the filing of a petition and a plan of reorganization with the bankruptcy court which may be voluntary or involuntary, when it is filed by creditors. Upon filing, you typically become the “debtor in possession” that keeps possession and control of your business and assets while reorganizing, but your creditors and the court must approve the plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
• Chapter 12 is like chapter 13, but is only for family farmers and family fishermen.