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What is Bankruptcy? There are two types of consumer bankruptcy. Each is intended to help consumers in financial crisis, but the solutions offered are very different.
Chapter 7 bankruptcy, or liquidation, is more common. A Chapter 7 bankruptcy can eliminate a lot of unsecured debt (credit cards, medical bills, old utility bills, unsecured personal loans, etc.), and can generally be completed within just a few months. In a Chapter 7 bankruptcy case, the trustee can liquidate (sell) non-exempt assets to pay creditors, but most people who file for Chapter 7 bankruptcy don’t have any non-exempt assets, and so are able to keep their property while eliminating unsecured debts.
Chapter 13 bankruptcy is often the solution of choice for people who have a lot of secured debt, such as car loans and mortgages, and want to keep the property that serves as security for the loans. In a Chapter 13 case, the debtor enters into a repayment plan that allows 3-5 years to catch up on past due payments.
Since the bankruptcy law change in 2005, there have been a lot of misunderstandings about bankruptcy. For instance, many people have been led to believe that almost no one can file for Chapter 7 bankruptcy anymore. That’s simply not true. Although the new bankruptcy law that took effect in October, 2005 added some hoops for debtors to jump through, consumer bankruptcy attorneys and credit counseling agencies have found from the beginning that the Chapter 7 means test actually prevents very few debtors from filing under Chapter 7. In fact, some credit counseling agencies have said that by the time most debtors come to them for the newly-required pre-filing credit counseling, they have no other realistic option! The safety net of bankruptcy is still available to most consumers in financial crisis.
A local bankruptcy attorney can help you understand the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy, so that you can make an educated decision about the best next step for you. Fill out the form below for a free bankruptcy case evaluation.
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Comments (4)
  written by Gail Liakos, April 24, 2010
My husband and I are looking for an attorney to help us file for bankruptcy. Both of us incurred a job loss in 2008. He has since found somewhat of a comparable job with a loss of income of approximately 20%. I, however, have been working at an 83% loss of my previous income. My previous income was more than double that of my husband's previous income.
 written by sb jeff, June 28, 2010
Who in Linkdin doesn't know what the difference between 7 and 13? Maybe I was expecting a connect-the-dots between bankruptcy and employment (e.g., how much harder it is for a bankrupt jobseeker, if/how to bring up your bankruptcy during interviews, etc.)
 written by JB, September 27, 2010
Since employers are doing more background checks of candidates, including credit scores, bankruptcy is relevant to the job search process. The ILostMyJob.com website has some strategies for challenging topics, like Addressing Previous Termination and how to deal with difficult questions in interviews. Part of being prepared is arming ourselves with information. The free case evaluation form above may be part of this self-education process for some people. It would be a good idea to ask plenty of questions of a specialist -- someone in your state or local area who can help review bankruptcy and the effects it may have on your life, legally, financially, and in terms of your next career steps.
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