What Is Chapter 7 Bankruptcy?
Chapter 7 is what people typically imagine when they think of filing for bankruptcy. It is designed for debtors who do not have the ability to pay their existing debts and want a fresh start financially. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay creditors in accordance with the provisions of the Bankruptcy Code. Your creditors will typically receive pennies on the dollar and the remaining balance owed will be discharged. Under the Bankruptcy Code, the debtor is allowed to keep their “exempt” assets. In most cases a chapter 7 is completed within 3 to 6 months from the date of filing.
What is Ch. 13 bankruptcy?
A chapter 13 bankruptcy is also called a wager earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debt via installments over three to five years. Chapter 13 offers individuals a number of advantages over liquidation under chapter 7.
Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
What Kind Of Debt Typically Is Dischargeable In A Chapter 7 And Ch. 13 Bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
A chapter 7 discharge is an order signed by the bankruptcy judge declaring all of your eligible debt to be discharged. The Court will normally grant a debtor in a chapter 7 case a discharge approximately 90 days after the chapter 7 case is filed.
In a chapter 13 case, the Court will normally grant the debtor a discharge after the debtor has completed all of his/her payments required under the bankruptcy plan. Many chapter 13 bankruptcy plans call for monthly payments over five years.
Not all debts are discharged. If a debt is non-dischargeable, the debtor must repay the debt even after bankruptcy. The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, and debts arising from fraud, embezzlement, or theft.
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