There are two main types of bankruptcy filed by consumers (not businesses) – Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy involves getting rid of most of one’s debts, but requires a huge sacrifice – almost everything that the debtor owns is sold off to repay debtors, and it is almost certain that if the person declaring Chapter 7 bankruptcy owns a house, they will lose that house.
Chapter 13 bankruptcy offers an individual the opportunity to keep their house, as long as they can make payments.
Chapter 13 bankruptcy involves designing a repayment plan which will generally last up to five years.
Most people are eligible for Chapter 13 relief as long as their unsecured debts are less than $336,900 and secured debts are less than $1,010,650. Secured debts are debts like a house or a car. Unsecured debts are generally debts like credit card bills.
When someone files for Chapter 13 bankruptcy protection, they work out a plan with their creditors and repay that over the course of five years, and the creditors are obligated to stop collection activity against the debtor.
As soon as the debtor files for Chapter 13 bankruptcy protection, debtors are supposed to cease their collection activities. This does not mean they will not get their money back or that the debtor no longer owes the money however.
The debtor generally will have to attend a 341 meeting. They will have to present a list of all of their debts and financial obligation, their income, the source of their income, and their assets. The creditors may attend this meeting. A trustee is assigned by the court and will attend this meeting.
No final decisions are made at this meeting. It is there to find out the facts of the case.
Just as in Chapter 7, the debtor still must repay taxes, child support, student loans, certain types of lawsuit judgement against them, and various other obligations.
Chapter 13 is generally going to be the best option for debtors because it allows them to keep more of their assets and to remain in their homes if they own a home.
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