Which Bankruptcy is Right For Me?

With so many Americans losing their jobs or being laid off due to COVID questions about bankruptcy and the need for bankruptcy attorneys may be approaching an all time high. The stimulus package has helped, but only in that it has delayed the inevitable. People were so far in debt after months of being laid off that the small sums offered by the government are not enough to eliminate the piles of bills. With the eviction moratorium in place no one is being thrown out on the streets yet. The stimulus package contained money to be used for rent. Unfortunately people are applying for that money and using it for other purposes. Therefore they are becoming even farther in debt. Once the eviction moratorium is over an unprecedented number of people will be unable to pay the rent/mortgage and will be out on the street.

Do yo lose sleep at night wondering what will happen to you? Do you avoid calls from the bank or the landlord because they want their money? Are you afraid to tell your children that you will have to move? It doesn't have to be that way. Bankruptcy is a chance at a fresh start. But which bankruptcy should you file for? Chapter 7? Chapter 13? What are the differences?

Chapter 7

Chapter 7 bankruptcy is perfect for people who have little or no income. This is a 3 month process that requires some paperwork and an appearance before the bankruptcy trustee, the official appointed to handle the case for the Court. It will require you to first go to credit counseling. Immediately upon filing the case an automatic stay is placed on all creditors until the court has had time to investigate the claim. That means that all collection activity immediately stops. No more worry about the mail. No more worry about phone calls. So long as the landlord doesn't have a judgment against you it even stops evictions. Assuming that a determination is made that you qualify for Chapter 7 bankruptcy you will participate in a creditors meeting to verify the information that you have provided. After 60 to 90 days following the creditors meeting you will receive a discharge from the Court. The debts that will be discharged include but are not limited to:

1. Most credit card debt
2. Court judgments
3. Deficiencies owed because of foreclosure
4. Personal Loans

Things that you can usually keep are:

1. Your home;
2. Your car;
3. Clothes;
4. Bed;
5. Other household furnishings and property;

Property that is not protected becomes the property of the Court and can be sold to pay your creditors.

Chapter 13

A Chapter 13 bankruptcy is quite different. With Chapter 13 your property is not sold to pay your creditors. Instead a portion of your income is used to pay some or all of your creditors over time (generally 3 to 5 years). This plan is perfect for people who have income but need to restructure their debt. Not having sufficient income to pay your debts is one of the most common reasons people are not able to qualify for this plan.

Like Chapter 7, you will start off with credit counseling before developing a feasible plan to repay some or all of your debts. Once a plan is in place you will begin paying all of your "projected disposable income" to the trustee who will then use the money to pay the creditors. Dischargable debts are:

1. Most credit cards
2. Medical
3. Legal debts
4. Most Court judgments
5. Deficiencies from foreclosure, repossessions and personal loans

Under Chapter 13 you will not have your property necessarily sold but you will have a lengthy repayment process. As in a Chapter 7 bankruptcy, an automatic stay will be placed on all collection activities upon the filing of the petition.

Meeting with a bankruptcy attorney can help you determine if you qualify for bankruptcy and if so, which is the best filing for you.