A Chapter 13 Bankruptcy is one in which you make a monthly payment to the trustee, for 36 to 60 months, to repay a portion of your debt to your creditors. You’re eligible for a Chapter 13 Bankruptcy discharge if you have a steady source of income, have not filed for a Chapter 7 Bankruptcy within the last four years, and have not filed for a Chapter 13 Bankruptcy within the last two years.
In order to qualify for a Chapter 7 Bankruptcy, you cannot have filed for a previous Chapter 7 within the past eight years and you must be able to pass the Chapter 7 means test (income test). If you qualify, you may be able to discharge most of your credit card bills, medical bills, repossession deficiencies and older taxes. Most people are able to keep all of their personal property. If you don’t qualify for Chapter 7, you can file Chapter 13.
Filing for Chapter 7 initiates the “automatic stay” – which is an immediate protection for you. It will stop wage garnishments, creditor harassment, and will provide temporary relief to home foreclosure proceedings and car repossessions. Mortgage companies and automobile lenders will continue to accept monthly payments on the debts owed to them, as long as you remain current.
There are certain debts that a Chapter 7 Bankruptcy does not allow you to discharge. Some of these debts include:
1. Recent taxes2. Student loan debt3. Child support obligations4. Spousal support obligations5. Debts not listed in the Chapter 7 Petition6. Credit that was obtained from fraud7. Debts with co-debtors – your co-signer will be liable for the full amount of the debt unless they also file bankruptcy
If you are behind on your mortgage payment or car loan, a Chapter 7 will not bring you current. However, there may be other options available to you., like Chapter 13.
It is also important to keep in mind that a Chapter 7 Bankruptcy may not protect all of your assets. If you own multiple homes with a lot of equity in them or other valuable assets such as boats or vehicles without loans against them, the bankruptcy trustee will either sell the item and use the proceeds to pay some of your creditors, or negotiate with you to receive the cash equivalent of the asset. We can help you negotiate with the trustee if this situation arises.
If you find yourself in this type of situation, where you have unprotected assets that you want to keep, it may be better to do some pre-bankruptcy planning or look into a Chapter 13 payment plan.
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