Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is the liquidation of the debtor's non-exempt assets. They are sold by the Chapter 7 trustee and then the money is sent out to the creditors. The case is begun by filing the official petition, schedules and statement of financial affairs. These forms prompt you to list all of your assets and all of your debts, along with some recent financial history. You must list all of your debts, even if the debt is non


or if you intend to reaffirm the debt. The automatic stay goes into effect upon filing the petition, creating a legal barrier to collection actions by creditors. The court appoints a trustee and gives notice to all creditors listed in your schedules that you have filed bankruptcy. You will get a copy of that notice at the same time it is sent to creditors. Certain debts survive a Chapter 7 bankruptcy because they are excepted from the discharge by law. Any debts that were reaffirmed also survive the bankruptcy.

Chapter 13 Bankruptcy

The debtor proposes a payment plan guided now by the application of the means test. The plan is filed with the schedules commencing the case; a copy of the plan or a summary of it is mailed to every creditor. The means test formula may result in there being no payment to general unsecured creditors. The plan must also provide for payment in full of priority claims and generally provide for payment of the value of secured claims on personal property (but not real estate)., in full over the life of the plan. Long term debt, like house mortgages, need not be paid off in full in the plan, though the plan might cure any defaults on long term debt. The discharge in Chapter 13 even covers some debts that cannot be discharged in Chapter 7. It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start.

Nondischargable Debts

  • Taxes
  • Child Support or Alimony
  • Criminal Penalties
  • Fines Owed to a Government Agency
  • Intoxicated Driving Debts
  • Debts Arising From Your Willful or Malicious Actions
  • Debts or Creditors You Don’t List
  • Student Loans (The Principle Amount)
  • Fraudulent Debts

Why People File Bankruptcy

1. Medical expenses

2. Job loss

3. Poor use of credit

4. Divorce