What is Bankruptcy Anyway?

Bankruptcy comes in two (2) primary forms for the individual: Chapter 7 and Chapter 13.

Chapter 7
The goal of the chapter 7 bankruptcy is to provide a fresh financial start for debtors who have unsecured debts that they can't realistically hope to repay. In most cases, a Chapter 7 bankruptcy filing immediately stays (stops) collection efforts. With a few specific exceptions, that means no more telephone calls, no more threatening letters, no repossession action, no foreclosure, no law suits, no utility disconnections, and no wage garnishment. The debtor is required to complete a pre-filing Credit Counseling Briefing and a pre-discharge Debtor Education Course.

Chapter 7 eliminates debts but may require a disgorgement of assets, depending on how well of the individual is. While Chapter 7 eliminates debts it may have severe financial implications, particularly if you have a lot of assets or funds. You must pass a means test to qualify for Chapter 7 protection.


Chapter 13
Chapter 13 bankruptcy allows a debtor to make payments on outstanding debt over a period of up to 60 months. Like a Chapter 7, the debtor is required to complete a pre-filing Credit Counseling Briefing and a pre-discharge Debtor Education Course. Furthermore, the Chapter 13 bankruptcy process requires completion of various schedules and petitions and can be a complex procedure. Therefore, it is important to choose a bankruptcy attorney who has the experience, compassion, and work ethic to see you through the process. A Chapter 13 is up to a five (5) year trek and the attorney may be required to re-enter the case years after filing if your income status changes.

The primary difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy is the repayment plan in a Chapter 13 bankruptcy case. The repayment plan commits the disposable income of the debtor to regular scheduled payments over a three to five year period. Chapter 13 frequently allows debtors to keep their home which may or may not be lost in a Chapter 7 (depending on the debtor's amount of home equity). Chapter 13 also has a means test for the debtor to qualify.