Chapter7

Bankruptcy is about liquidating all nonsecured debts. Chapter 7 Consumer Liquidation Bankruptcy applies when the monthly payment on all personal overhead (rent/car payment/utilities/groceries) exceeds your take home income. You will keep your home and your car under the current state of the law.

The term Chapter 7 Bankruptcy comes from the federal statute that contains this particular section of the bankruptcy code. Lawyers call this form of bankruptcy "straight bankruptcy" because it cancels out most of your debts.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The bankruptcy discharge has the effect of extinguishing the debtor's personal liability on dischargeable debts. Although the filing of an individual chapter 7 petition usually results in a discharge of debts, an individual's right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

A Chapter 7 Bankruptcy generally takes from 4 to 6 months to complete, costs $209 to file, and usually only takes one trip to the court house.

Filing bankruptcy puts into effect the "automatic stay" The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors will not be able to go after your car, house or other property, or cut off your utility service or welfare benefits. Further, the automatic stay will stop most legal proceedings that may be running against you and will stop collection efforts.

Until your bankruptcy case ends, your financial problems will be in the hands of the trustee of the bankruptcy court. The court assumes legal control of the property you own (except for exempt property) and the debts that you owe as of the date you file. Nothing can be sold or paid without the court's consent. You have control, with a few exceptions, of property or income that you acquire after you file for bankruptcy.

A bankruptcy court operates through an appointed person called a "bankruptcy trustee." The trustee goes through the papers that you file with the court, and he asks you a few questions at a short hearing called a "creditors meeting." Creditors may attend this meeting, but rarely do.

After the meeting, the trustee collects the property that can be taken from you (your nonexempt property) to be sold to pay creditors. You can surrender the property to the trustee, pay the trustee its fair market value, or, if the trustee agrees, swap exempt property for nonexempt property. Very few people actually lose property in the bankruptcy.

If you have pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses, and motor vehicles. In most cases, you will either have to surrender the collateral to the creditor or make arrangement to pay for it during and after the bankruptcy.

If you're a party to a contract or lease, and you or the other party still has obligations under it, the trustee may cancel it unless the contract will produce assets for the creditors. If it's canceled, you and the other party to the contract are cut loose from any contractual obligations.

If, after you file for bankruptcy, you change your mind, you can ask the court to dismiss your case. As a general rule, a court will dismiss a Chapter 7 bankruptcy case as along as the dismissal won't harm the creditors.

At the end of the bankruptcy process, most of your debts are wiped out by the court. You no longer legally owe your creditors. You can't file for Chapter 7 bankruptcy again for another six years from the date of your filing.

Chapter 13 Bankruptcy is about forcing creditors to negotiate with you subject to a bankruptcy trustee's approval. Chapter 13 Bankruptcy forces creditors to settle up for dimes on the dollar. Once again, you take control and you set forth a Chapter 13 Bankruptcy plan that you can work with. Chapter 13 Consumer Bankruptcy applies when your income exceeds your monthly personal overhead to some extent such that you are able repay some portion of the debt back. Once again, however, recognize Chapter 13 Consumer Bankruptcy is about putting you back in control.