For most individuals and their families there are two kinds of bankruptcy.  They are known as:  Chapter 7 – Liquidation and Chapter 13 – Adjustment of Debts of an Individual with Regular Income.  But, some individual family farmers or fishermen may file a Chapter 12 – Adjustment of Debts Of Family Farmer or Fisherman With Regular Annual Income.

Chapter 7 (Liquidation)

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up some of you property that is sold at auction to pay some of your creditors.   However, the bankruptcy law allows you to protect some of your property and prevent its sale.  These are  called  “exempt” property which the law allows you to keep.  The purpose of allowing a debtor to keep some, if not all of their property, is to allow them to have the assets necessary to run their homes and businesses and to carry on daily living.   In many cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.  If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case may not be right for you.   That is because chapter 7 bankruptcy does protect property that was given as collateral for a debt, such as a home mortgage or a car loan.  Creditor can foreclose on your home or repossess cars whose debt was eliminated in a Chapter 7 case.   There are exceptions to this rule, please talk to a qualified attorney, before you decide to file a Chapter 7 case.   If you are having difficulty paying a car or home loan and wish to keep them, and if you are employed or have income, then you may be able to file a chapter 13 case.

You should consider filing a chapter 7 bankruptcy if you:

• Are not employed or do not have enough income to pay for your necessary household expenses and pay your creditors.
• Are being sued or if your paycheck, bank accounts, or income tax refunds are being garnished.
• Are facing foreclosure, do not wish to keep the property, but need time to move.

Chapter 13 (Reorganization)

In a chapter 13 case you can save your home or your car by making payments over time to bring those accounts current.   In a chapter 13, a debtor prepares a repayment “Plan”.  This Plan tells the court and your creditors how you will re-pay your creditors with payments from your income.  The Plan math must “add up”. Your monthly budget must show that your bankruptcy plan payments will bring your secured debts accounts current, pay the expenses of bankruptcy and pay some of your other debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep your home and car and other valuable property.  Property that was not “exempt” and would have been auctioned off in a Chapter 7 case, to pay your creditors is protected.  It is not required to be sold.  You may propose a plan where you sell property and pay that money into the Plan, but that is up to you. A chapter 13 Plan must pay the same amount to your creditors that they would have been paid if you had filed a chapter 7 case.  But, so long as you can pay your secured and other debts from your income,  chapter 13 is probably right for you.

You should consider filing a chapter 13 plan if you:

• Are employed or have other regular income;
• Own your home and are in danger of foreclosure;
• Are behind on car debt payments, but can catch up if given some time;
• Have valuable property which you cannot exempt or protect from creditors, and
• You will need to have enough income during your chapter 13 case to pay for your necessary household expenses and to keep up with the required payments as they come due.

Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, the bankruptcy process is complex, no matter which chapter you use.  A successful bankruptcy case starts with the selection and consultation with a qualified Bankruptcy attorney who specializes in Bankruptcy.  There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly.  Bredow Law specializes in bankruptcies for consumers.  When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email info@bredowlaw.com