Which Chapter?

Understanding Chapter 7 and 13 Bankruptcy

If you've been considering bankruptcy, you've probably been hearing the terms "Chapter 7" and "Chapter 13" thrown around. If you're like most people, you are probably not familiar with these concepts, but which chapter you choose (if indeed you have a choice) will have a major impact on you in the bankruptcy process.

The different chapters of the U.S. Bankruptcy Code provide different ways for people to get debt relief. Chapters 7 and 13 are the ones most commonly used by individual consumers. Below is some general information; to discuss which chapter may be right for your specific circumstances, contact me at my offices in Indianapolis.

Eliminating Certain Debts Quickly in Chapter 7

In Chapter 7, many debts — including most unsecured debts, which are those not backed by an asset like a home or car — can be discharged (eliminated) after a period of about four months. In the meantime, from the moment you file, you are protected from lawsuits, wage garnishment and other creditor actions.

If you file Chapter 7, a trustee will be appointed, who theoretically gets to take over and liquidate (sell off) your property in order to repay your creditors. However, most bankrupt individuals actually get to keep all of their property.

Under Indiana law, many assets are exempt from liquidation, including personal items totaling $8,000.00 in value, per debtor, certain amounts of home equity, and most retirement accounts. If you have non-exempt assets and decide to move forward with Chapter 7, the process should still only take about four months.

Adopting an Affordable Payment Plan in Chapter 13

The Chapter 13 process is designed for people who have a stable source of income and can afford to pay at least a portion of that income every month to their creditors. In Chapter 13, you and your attorney design a three- to five-year repayment plan, which must be approved by the court. Your debts can be repaid without interest, and many types of debt do not have to be paid in full.

Chapter 13 allows people with significant assets to keep property that might be liquidated under Chapter 7. Also, certain types of debt that cannot be paid over time in Chapter 7 can be paid through on the Chapter 13 payment plan. This includes past due mortgage payments, allowing many people to avoid foreclosure.

U.S. bankruptcy laws are very intricate. To discuss your bankruptcy options with an experienced lawyer, contact me today.