Bankruptcy relief is not a “one size fits all” solution and you will find that one type or “chapter” of bankruptcy provides the biggest benefit. For most individuals and families the choices boil down to two options: Chapter 7 or Chapter 13.
As you will see, these two forms of bankruptcy are designed to do different things.
Chapter 7 is what most people think about when they hear the term bankruptcy. Chapter 7 gets rid of debt and is designed to provide a fresh start to you and your family. Of course, there are no free lunches in life and Congress has put some limitations on who can file Chapter 7 and what type of debt it can discharge (eliminate).
First let’s discuss what Chapter 7 can do for you. Your Chapter 7 discharge will get rid of:
- credit card debt
- other unsecured or signature debt
- repossession deficiency claims
- foreclosure deficiency claims
- judgments arising from most lawsuits
- stale (old) tax debt
Chapter 7 can also:
- cancel an unfavorable car lease without penalty
- cancel an apartment lease without penalty
- surrender secured items such as motor vehicles, boats, furniture, jewelry, and houses without penalty – you can just walk away from the debt (although you have to give back the collateral)
- cancel any obligations you have as a co-signer on someone else’s debt
Here’s what Chapter 7 cannot do:
- get rid of recently incurred credit card debt
- get rid of recently incurred signature debt
- get rid of recent tax debt
- get rid of student loan debt
- get rid of child support or alimony
- get rid of debt arising from bad acts such as fraud, DUI or criminal behavior
As you can probably tell, the rules about what you can and can’t discharge in Chapter 7 bankruptcy are very detailed and fact specific. An experienced lawyer can offer perspective about what works and what does not.
Another thing that your lawyer can do for you is determine whether you are even eligible for Chapter 7. Under the federal bankruptcy laws, you only qualify for Chapter 7 if your household income falls below a certain level – in other words if you earn $500,000 per year, you probably won’t qualify to file Chapter 7. The calculations used to determine whether or not you qualify for Chapter 7 are contained in something called the bankruptcy means test, which looks at your recent pay stubs and other information. Means test calculators are built into the computer programs lawyers use and many times we can squeeze higher income earners into Chapter 7 if doing so makes sense.
About Chapter 13 Bankruptcy
The other common form of bankruptcy is described in Chapter 13 of the bankruptcy law, thus the shorthand “Chapter 13 bankruptcy.” Unlike Chapter 7, Chapter 13 functions not to wipe out debts but instead to pay back your debts over time. Chapter 13 works best when you have regular income and need to restructure your budget. Here are some examples of how our clients have successfully used Chapter 13:
- stop a mortgage foreclosure and pay missed payments over 5 year repayment plan
- stop a vehicle repossession and restructure vehicle purchase loan
- stop a wage garnishment, eliminate the judgment and pay the debt over time
- pay unsecured debt (credit cards, medical bills, signature loans) at less than 100 cents on the dollar (sometimes as little as 5 cents or even 1 cent on the dollar)
- delay collection of a student loan debt
- pay recent tax debt in full as part of your Chapter repayment plan, while paying stale tax debt at a much lower percentage
Chapter 13 can also be a viable alternative if your need relief from creditors but do not qualify (because of income) for Chapter 7.
Chapter 7 and Chapter 13 bankruptcy are two possible options that may be available to you when you are facing a debt problem. There are also a variety of non-bankruptcy options that can apply. We would be happy to speak with you – at no cost or obligation – to review the options available to you. Please use the contact form on this page to contact us or call our office at 770-393-4985.
Remember that all conversations you have with an attorney are private and confidential. We look forward to serving you.
