Consumer Bankruptcy

Bankruptcy causes creditors to immediately stop action to collect a debt, or to repossess property or foreclose a mortgage without court permission.

Comes in two varieties, Chapter 13 "Regular Income Plans" and Chapter 7 "Straight" Bankruptcy:

  1. Chapter 13 "Regular Income Plans" are designed for people who have some regular income over and above their current living expenses (for food, rent, clothing, utilities, etc.). As a Chapter 13 debtor, you propose a repayment plan for debts which can be repaid within three to five years and make regular payments to a court-appointed trustee. ALL remaining debts not paid through the plan are discharged, except for alimony and child support. (The last three years' taxes must be paid through the plan.) Usually, under Chapter 13, no property is lost. Property given as security can be redeemed at its resale value through payments to the trustee. And, default on a mortgage can also be cured by payments to the trustee.
  2. Chapter 7 "Straight" bankruptcy, discharges debts but also can cause loss of property which is not "exempt." This property must be sold by a court appointed trustee for the benefit of your creditors. "Exempt" property is property which is preserved by state or federal law from sale to repay creditors because it is necessary for the functioning of your household. The dollar limits and kinds of "exempt" property vary from state to state. In addition, property, which has been used as security for a debt is subject to loss, unless you pay the creditors its resale value in a lump sum, or the creditor agrees to take installment payments. Some exempt property (household goods, professional tools,) may be preserved even though it was used as security for a debt. (The extent of this right is uncertain.) Unlike Chapter 13, certain debts in addition to alimony and child support are "non-dischargeable." This means that a creditor can object to their discharge. These include:
  1. Debts for fraud, disposal of property used as security for a debt, embezzlement, larceny, malicious (intentional) injury to another person or their property, and debts for credit obtained with a false financial statement (where you intentionally omitted debts from your credit application in order to obtain credit).
  2. Back taxes.
  3. Student loans due and owing for less than five years (unless extreme hardship is shown.)
  4. Fines or penalties imposed by government.
  5. Debts which you fail to list on your bankruptcy schedules.

SUMMARY:
You are eligible for a Chapter 13 Regular Income Plan if you have enough income to meet your current living expenses and have some left over. Chapter 13 uses this left over income to repay debts you can afford to repay within three to five years and discharges the rest, except for alimony and child support. Usually, no property is lost. Chapter 7 wipes out dischargeable debts, but property which is not exempt from use for debt repayment is subject to loss.

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