Bankruptcy Division

 

Q: What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A: In a Chapter 7 bankruptcy , your debts are wiped out and some of your assets are transferred to a court appointed trustee. In other words, you surrender property of your estate that is "nonexempt" in exchange for a discharge of all your debts. After the bankruptcy process, you no longer owe creditors anything. Chapter 7 is often called a "straight" bankruptcy or "liquidation" bankruptcy. In contrast, in a Chapter 13 bankruptcy your debts are not wiped out. With Chapter 13 you keep all your assets and establish a new workable repayment plan. The repayment plan typically lasts between three and five years. Chapter 13 can be a good option for individuals who have a steady income and believe they will be able to make steady payments over the term of the plan. Often the plan is designed so that you make regular payments on your secured debts and reduced payments on unsecured debts. At the end of the plan, any remaining amounts owed on the unsecured debts is discharged.

 

Q: How do I know if I qualify to declare bankruptcy? Are there any special requirements?

A: Most people qualify to declare bankruptcy. However, if you recently declared bankruptcy and want to file again, there may be some restrictions. It is best to check with an attorney in this situation. In general, if you received a Chapter 7 or Chapter 13 discharge of debts within the past six years you will have to wait until more time passes before filing under Chapter 7 again. The six year period begins when the petition if filed, not when you were granted a discharge. There is an exception if you obtained a Chapter 13 discharge in good faith and paid 70% of your unsecured debt. Also, note that Chapter 13 bankruptcy can be filed for at anytime. So if you need immediate relief from creditor's collection efforts and are barred from Chapter 7, this can be a good option. There is also a rule that forbids filing a bankruptcy within 180 of a previously dismissed petition in some circumstances.

Q: But what if I'm not a U.S. Citizen; can I still declare bankruptcy?

A: Yes, so long as you live in the United States, have property here, or a business here. U.S. citizenship is not required.

 

Q: What property can I keep if I file for a Chapter 7 bankruptcy?

A: If you are considering filing for bankruptcy, it is natural to want to know what property you will be able to keep. Unfortunately, an accurate and complete answer is too complex for this FAQ. However, in most states the list of "exempt" property is extensive. California's exemption guidelines are relatively generous! In most cases you can keep all of your clothing, household goods and furniture, public benefits assistance (such as Social Security payments you haven't spent) and many other basic items. For more information on exemptions, see the subheading below.

 

Q: Are there alternatives to bankruptcy?

A: Yes, and in some instances they make sense. The situations where these other courses of action are appropriate include:

If you previously received a bankruptcy discharge. If you only want to stop abuse and harassment from collection agencies and other bill collectors. If a friend, relative, or significant other cosigned a large loan you are trying to avoid. If you could pay off your debts in less than five years. If you are worried that creditors will seize all your property or garnish all your wages. If you defrauded your creditors. If you recently purchased large debts for luxuries such as vacations, hobbies or entertainment. If you expect you will soon be incurring more debts for necessities such as medical care for an existing illness. 

 

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