Personal Bankruptcy is generally done through a Chapter 7 or a Chapter 13. Different factors will determine which one you file, however, there are many characteristics that pertain to both.
Bankruptcy is Not the Best Choice for Everyone
First it should be noted that, Bankruptcy is not the best choice for everyone. Should a client come to us seeking Bankruptcy relief, when there are better options available, we will explore those options with the client, and potentially choose a different direction to ease their financial stress.
Creditor Calls Stop as Soon as you File
If you do choose to file Bankruptcy, as soon as you do so all creditors must cease any phone calls or letters that are in attempts to collect on a debt owed to them. This includes any credit card collections, foreclosures, repossessions or pending lawsuits that are currently in place. Pending on the chapter you file, as well as the type of debt that you owe will depend on whether collection efforts will be able to resume in the future or not. Furthermore, certain debts, such as student loans, or child support obligations, are almost never dischargeable.
The Impact on your Credit Score
Filing Bankruptcy does place a negative impact on your credit, however starting fresh can sometimes increase your credit score faster than carrying the burden of so many debts for so long. Credit can even begin to be rebuilt shortly after the Bankruptcy process is complete. Also, at the law offices of Brown, Van Horn, we can help you to rebuild your credit even faster with different credit restoration methods and personal credit counseling including various tips that will increase your score, that are easy to do, but not commonly known. See Credit FAQs.
There are many differences between Chapter 7s and 13s, as well as many details that need to be known before filing. Below are very general descriptions of Chapter 7s and 13s. The Chapter that you choose to file is generally decided upon at a consultation with an attorney, after hearing the details of your financial situation.
Chapter 7
A Chapter 7 can be personal or corporate. For a Corporation Chapter 7, see Corporate Bankruptcy.
A Chapter 7 is referred to as a liquidation. To qualify for a Chapter 7 a few different criteria need to be met. First, there is a ‘means test.’ The means test basically says that if your annual income is above a certain amount then you do not qualify for a Chapter 7. This does not mean you will not qualify for a Chapter 13. The amount of annual income changes periodically and is based on your household size. This is something that can be pulled up at an initial consultation. To qualify for a Chapter 7, you also need to be up to date on payments for any secured loans, such as your home or vehicle, if you plan to keep these items. If you are behind on any secured payments and you want to keep the items, you may want to consider a Chapter 13. Additionally, in a Chapter 7, there are certain exemptions that will not be touched in the Bankruptcy. If you go over these exemptions, you may want to file for Chapter 13, to assure that you get to keep these items.
A Chapter 7 is generally complete after about 5 months. Should everything go as planned, you receive a discharge at the end of the 5 months, and certain debts are discharged, and you may begin to build your credit again. You will generally only need to go to Court one time during this five months, and this is for a 341 meeting, also called the meeting of creditors. If you choose to hire an attorney, he or she will attend with you. All that generally happens is that you answer a few simple questions for the trustee. A judge is not even present. At Brown, Van Horn, we always prepare our clients prior to this hearing to give them an idea of what to expect, and to ease any nerves they may have.
Chapter 13
A Chapter 13 is generally for those whose annual income exceeds the means test, or they have secured debts (such as a home or vehicle) that they are behind on but want to keep, or they have more assets that they want to keep than the Bankruptcy exemptions permit. A Chapter 13 is different from a Chapter 7, in that you make payments into a Bankruptcy plan for anywhere from three to five years. The payments are made monthly and they will depend on many factors, such as, the amount of debt you owe, what kind of debt you (secured or unsecured), how many assets you have that exceed the exemptions, and primarily your monthly income. After all the payments are made throughout the plan, whatever is still owed at the end of your plan is discharged.
There are many other advantages of filing a Chapter 13 when you are behind on your home or vehicle payments. You may not need to pay the full amount of the claim. If you are behind on one of these payments please mention this at your initial consultation to see how your specific situation can be helped.
Chapter 13s are also required to attend a 341 meeting, however, it is generally just as quick and simple as it is for Chapter 7s.
Before you File Make Sure Bankruptcy is Right for You
There are many other factors to look at before deciding to file for Bankruptcy, and before deciding what Chapter fits your financial situation. This is why prior filing you should consult an attorney to guide you through this process. While it can be done smoothly and quickly, it needs to be done right to avoid any bumps in the road.
Please Feel Free to Contact Us for your FREE Consultation. Also see Bankruptcy FAQs.