9 Things to Know About Chapter 7 and Chapter 13 Bankruptcy

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Individuals who are on the verge of financial ruin may seek protection through federal bankruptcy laws available throughout the United States. If you are having problems paying bills or are being threatened by creditors with lawsuits, wage garnishment or property seizure, bankruptcy may offer a solution. A Chapter 7 and Chapter 13 bankruptcy attorney can be hired to represent you through the entire bankruptcy proceedings.

1. How do I obtain relief from my creditors?
For certain people, filing a bankruptcy case will achieve the relief from debt that they seek because this can result in the grant of a discharge of debts to an individual. A discharge is the forgiveness of personal liability for debts which have been incurred prior to the filing of the bankruptcy case. With few exceptions, creditors are prohibited from suing a debtor, obtaining a judgement or collecting for debts which have been discharged and will have no claim on the future income or assets of the individual who has filed for bankruptcy relief as a debtor.

Bankruptcy, while it may relieve a personal obligation to repay a debt, does not eliminate most mortgages or liens on property. Thus, in order to retain a car or a house which has been pledged as collateral on a loan, a debtor will ordinarily have to repay the creditor the full amount of the debt over time or redeem the property by paying the full value of the collateral in cash to the creditor.

2. What are my alternatives?
Individuals may choose several different types of bankruptcy. The choice of Chapter 7 or Chapter 13 will depend upon the financial circumstances of the debtor, the amount and nature of the debts to be dealt with in bankruptcy, the exemptions available and the types of assets owned by the debtor.

3. What is Chapter 7 bankruptcy?
Chapter 7 is what most people refer to as “straight bankruptcy”. In a Chapter 7, the debtor turns over all of his or her non-exempt assets to a Chapter 7 trustee. The Chapter 7 trustee liquidates those assets and distributes the proceeds to the debtor’s creditors. By order of the Bankruptcy Court, the person is then discharged from all debts.

4. How do I benefit from a Chapter 7 bankruptcy case?
Once you file your case, your creditors are prohibited from continuing suits against you or from attempting to collect their claims against you and your property. Rather, creditors must look solely to the Bankruptcy Court and the assets within its control for payment of their claims. By filing the Chapter 7 bankruptcy case and obtaining a discharge, you receive a total forgiveness of the discharged debts and receive a “fresh start”.

5. What are the differences between Chapters 7 bankruptcy and Chapter 13 bankruptcy?
Chapter 7 of the Bankruptcy Code is entitled “Liquidation” and, as the name implies, generally requires sales or foreclosure of all property except property deemed to be exempt. In most instances, the Chapter 7 debtor is promptly discharged from all or most pre-bankruptcy debts and receives a fresh start on a new economic life. This new economic life frequently begins only with exempt assets.

Chapter 13 bankruptcy is entitled “Adjustment of Debts of Individuals with Regular Income.” It is often called “wage earner” or just “Chapter 13”. Chapter 13 debtors pay all or part of their debts through future income rather than through liquidation or foreclosure of present assets. Chapter 13 is available only to individuals with regular income whose non-contingent, liquidated unsecured debts are less than $250,000 and whose secured debts are less than $750,000. Corporations and partnerships are not eligible for Chapter 13 bankruptcy. The Chapter 13 debtor’s income must be regular, but can come from such things as self-employment, pension, welfare or alimony.

6. How does Chapter 13 bankruptcy work?
Under Chapter 13 bankruptcy, the debtor presents a plan of debt repayment which is reviewed by the Chapter 13 trustee, creditors and the Bankruptcy Court. The plan must be filed in good faith, must provide for payments that are feasible in light of the debtor’s income and expenses and must also provide for payments over time that are equal in value to the money creditors would have received if the debtor had chosen Chapter 7 liquidation instead of Chapter 13. The plan must also provide that, for a period of three years, all of the debtor’s income above reasonable expenses will be used to pay debts.

If the Chapter 13 plan is approved, all payments are made through the Chapter 13 trustee’s office, and the trustee is paid a commission. Most plans must run at least three years and cannot exceed five years. Chapter 13 provides that the debtor receives a discharge from most pre-bankruptcy debt upon making the payments called for by the plan.

7. Can I keep my property when I file for bankruptcy?
Chapter 13 debtors often keep property they would lose in a Chapter 7. Keeping secured property in a Chapter 7 usually requires the creditors’ agreement. Secured creditors do not have such control in a Chapter 13.

Consequently, Chapter 13 debtors usually keep their cars, house and other important property subject to security interests, even if the creditor wants the property back. Property not subject to security interests can also be kept in a Chapter 13, even though its value is not exempt and would be lost in a Chapter 7.

8. Who will find out if I file for bankruptcy?
In most cases, only you and your creditors will know that you have filed for bankruptcy. Even though bankruptcy proceedings are a matter of public record, this information rarely gets publicized unless you are affiliated with certain high profile organizations, hold a public office or have a high profile job.

Of course, your creditors will be notified of the bankruptcy, and the information will be shown on your credit profile that will be accessible by future lenders. Your employer is usually not privy to the information unless you are having Chapter 13 payments automatically deducted from your paychecks. While rare, some smaller communities may publish notices of bankruptcy filings in the local newspaper. However, that practice is typically considered distasteful and outdated by most modern news agencies.

9. What information do I need to provide to file Chapter 7 or Chapter 13 bankruptcy?
Following is a checklist of information required for filing bankruptcy.

1. Proof of Income
a. Last 6 months pay-stubs
b. Last 2 years tax returns

2. Proof of debts
a. House loan – current statement
b. Vehicle loan – current statement
c. Personal loans – statements and credit agreement
d. Payments on account to retail merchant – statement and credit agreement
e. Credit cards – monthly statements
f. Medical – statements and/or letters
g. Letters turned over to collections
h. Taxes – letters from IRS, GA and County
i. Child support/alimony – court orders and letters
j. Other debts – statements and/or letters
k. Credit report (optional)

3. Proof of value of assets
a. Recent appraisals on house/land
b. County tax appraisals
c. Car/truck registration

4. Proof of identification
a. Driver’s license
b. Social security card

5. Other documents
a. Leases/contracts
b. Court documents re. lawsuits
c. Last 2 months bank statements for all accounts

The information on this checklist will provide the details necessary for a liquidation of assets under a Chapter 7 bankruptcy or a debt repayment plan under a Chapter 13 bankruptcy.

If you are facing the possibility of a Chapter 7 or Chapter 13 bankruptcy filing, the chances are you are probably feeling a lot of stress and sleepless nights. If you want to start getting your financial situation in order contact Dozier Law, P.C., experienced Bankruptcy Attorneys in Rincon, Effingham County, Chatham County, Bulloch County, Screven County and Bryan County, Georgia. Your initial Bankruptcy consultation will be no charge.

For additional information, go to the our Bankruptcy Practice Area.