About Chapter 7 Bankruptcy and Chapter 13

Learn about Chapter 7 bankruptcy, (straight bankruptcy) and Chapter 13, (repayment plan).

 Chapter Seven, Straight Bankruptcy

In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. Straight bankruptcy does not require you to pay any of your wages to the Trustee nor to any creditors. 

If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan (secured creditors), a Chapter 7 case may not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. But, if you are current on your secured debts, then you will be able to continue paying your secured creditor during and after the Chapter 7 bankruptcy in order to keep the collateral.

Chapter 13, Repayment Plan

As an alternative to Chapter 7 bankruptcy, Chapter 13 allows for repayment.  In a repayment plan you file a "plan" showing how you will pay off some of your past-due and current debts over three to five years. 

The most important thing about a repayment plan case is that it will allow you to keep valuable property--especially your home and car--which might otherwise be lost, so long as you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. 

You should consider filing a chapter 13 plan if you:

1. own your home and are in danger of losing it because of money problems;

2. are behind on debt payments, but can catch up if given some time;

3. have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

 
You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due.

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Chapter 7 Bankruptcy and all associated materials and related studies are the complete work of the site's author, Margaret Lukasik, and cannot be copied by any means without her express written permission.