Chapter 7 Bankruptcy

In a bankruptcy petition filed under Chapter 7, a debtor is seeking to obtain a discharge of outstanding debt. The discharge is a court order which absolves the debtor from having to pay debt classified by the bankruptcy law as "dischargeable." The discharge serves as a permanent injunction against otherwise potential collection action for debt incurred prior to the bankruptcy.
In essence, a Chapter 7, bankruptcy discharge allows a debtor to proceed forward without financial turmoil, thereby providing the debtor with an opportunity for a fresh start.

Most debts are dischargeable, such as credit card balances, bank loans, court judgments and medical bills. Debt categorized by the bankruptcy law as "non-dischargeable" includes certain types of tax debt, most student loans, government fines, restitution for outstanding child and spousal support, and debts incurred from criminal or fraudulent conduct.

A Chapter 7 bankruptcy filing technically results in the liquidation of a debtor's assets designated as "nonexempt" by the bankruptcy law. Upon the filing of a Chapter 7 petition, a United States Bankruptcy Court Trustee is assigned to evaluate and sell a debtor's nonexempt assets. The proceeds of any such sale are used to pay off creditors. A Chapter 7 bankruptcy debtor is able to retain all property categorized as "exempt." Examples of property classified as exempt by the bankruptcy law includes:

      • Cash, U.S. Savings bonds and tax refunds up to $2,500;
      • Household furniture
      • All wearing apparel
      • Certain appliances and household goods
      Equity in a motor vehicle up to $2,400. ($4,800.00 For spouses filing jointly)
      • Equity in a house, condo, or co-op up to $50,000.00
        ($100,000.00 For spouses filing jointly)
      • Most pensions and retirement plans

As a result of the recent changes to the bankruptcy laws it is important to utilize the services of an attorney to carefully evaluate an individuals income expenses.  Individuals who earn over certain income thresholds and have income in excess of certain allowed expenses may not qualify for chapter 7 bankruptcy but maybe a strong candidate for chapter 13 bankruptcy.

Chapter 11 Bankruptcy

In today's uncertain economy, many small business owners are facing great financial difficulty. Business owners may pursue relief from their creditors under Chapter 11 Bankruptcy. Typically, Chapter 11 is the option mostly utilized by businesses.

A debtor in Chapter 11 may continue to operate its business while the court proceedings are pending. However, the Bankruptcy Court must approve a plan designed to repay the debts.

Chapter 13 Bankruptcy

Chapter 13 of the U.S. Bankruptcy Code provides a debtor with an opportunity to pay off its debts through a court approved payment plan. The Chapter 13 procedure allows a debtor to repay some or all of its debts over a period of three to five years. Typically, the Chapter 13 debtor possesses the ability to repay some or all of their debt but requires time to do so. The benefit received from filing a Chapter 13 bankruptcy petition is that a debtor can keep all of his or her property (typically their home and car), including those valuable assets, which are not exempt.  One of the additional benefits of chapter 13 bankruptcy is interest and late fees do not accrue in a chapter 13 payment plan.

A common scenario in which a debtor will utilize the Chapter 13 option is when the debtor is behind on its mortgage payments. Chapter 13 bankruptcy will stop a foreclosure proceeding and give the debtor the right to pay back the past due payments over a period of up to sixty (60) months. As part of the payment plan, a debtor is required to pay back a percentage (or all) of the unsecured debt.

Upon the completion of the plan, the debtor will receive a discharge of debts and will be able to keep their property.


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  Types of Bankruptcy  
  Chapter 7
Personal Bankruptcy

Chapter 11
Business Debt Reorganization

Chapter 13
Personal Debt Reorganization ...more

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