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Chapter 7

A Chapter 7 Bankruptcy is often referred to as a “straight” or “liquidation” bankruptcy. It is appropriate when a person cannot or does not desire to make any more payments to their creditors and will give them a “fresh start”. Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case should be permitted to proceed under Chapter 7. If your income is greater than the median income for the state and your family size, in some cases creditors can file a motion requesting that your case be dismissed. In most instances the debtor is allowed to keep a certain amount of property, which is known as “exempt property”. Non exempt property is sold and the proceeds distributed to the creditors by the Chapter 7 Trustee, who is appointed to represent your creditors. If you have no non-exempt assets that can be liquidated, then your case is determined to be a “No Asset” case and you will receive your “discharge” within a few months.

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Chapter 13

A Chapter 13 bankruptcy is a type of reorganization which allows you to pay something back to your creditors. Generally they are not paid in full, but are paid according to your ability to pay. A Chapter 13 bankruptcy may be appropriate in order to keep property that is not exempt and which might otherwise be lost in a Chapter 7. You must file with the court a plan to repay your creditors all or part of the money that is owed and the court must approve your plan before it can take effect. A monthly payment is made to the Chapter 13 Trustee for a minimum of 3 years and a maximum of 5 years from your “disposable income”, that is income that is left over after you pay your reasonable living expenses. None of your assets will be liquidated by the Chapter 13 Trustee. Sometimes it can be less expensive to file a Chapter 13 instead of a Chapter 7 because it is possible to modify secured debts in a Chapter 13. Additionally, Chapter 13 allows you to cure defaults/arrearages that have accrued on secured debts, which is not allowed in a Chapter 7. After completing your payment plan, your debts are generally discharged.

Chapters 11 & 12

There are two other kinds of bankruptcies: Chapter 11 and Chapter12. Chapter 11 is a kind of reorganization that is generally used by businesses. Chapter 12 is a kind of reorganization that is only available to family farmers.

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