Bankruptcy/Garnishment/Loans

There are several types of bankruptcy. The most common are Chapter 7 and Chapter 13. If you are a family farmer or a business owner, you should ask an attorney about other types of bankruptcy that might be available to you.

Chapter 7 bankruptcy is often referred to as liquidation. It does not involve a monthly payment to creditors. In a Chapter 7 proceeding, most unsecured debts are eliminated. The individual filing for bankruptcy can choose to reaffirm secured debts. It usually takes no more than 3 months before the debtor receives a discharge.

Chapter 13 bankruptcy is often called a debt consolidation plan. In a Chapter 13 proceeding, some secured debts may be restructured or given special payment provisions. This is done so a debtor can catch up on past-due payments and keep things that are necessary for life. In a Chapter 13 bankruptcy, the debtor follows a bankruptcy plan that lasts from 3 to 5 years. The plan requires monthly payments to a bankruptcy trustee, who sends the money to the creditors. At the end of the plan, the debtor’s secured debts should be paid off, any home mortgage payments should be current (and resumed by the debtor), and most remaining unsecured debts will be discharged.

Chapter 7:

To file a Chapter 7 bankruptcy, you must qualify based on income and expenses. In general, your normal and necessary living expenses, including secured debt payments, must take up so much of your income that you cannot afford to pay your unsecured creditors. You should be current on your secured debts when you file a Chapter 7 bankruptcy. If you are not, the secured creditor can repossess its collateral.

Chapter 13:

To file a Chapter 13 bankruptcy, you must have a source of income because Chapter 13 requires a payment plan. The income may be from job wages, unemployment benefits, worker’s compensation, SSI, or disability income. Several factors determine how the payment plan will work. Some of these factors are the debtor’s income, the size and type of debt, and any secured items the debtor plans to keep.

Before filing for bankruptcy, you must take a consumer credit counseling course. This course generally lasts from 30 minutes to 1 hour. The counseling may be done by phone, in person, or on the Internet. The court will require you to take another counseling course before completing your bankruptcy case.

Bankruptcy is still a viable option for those who need financial relief.