You are not going to know what type of bankruptcy you should file. As your legal representative, it is our job to analyze your assets (all the property you own), your current and past income, your debts, and your monthly expenses. Depending on all these factors, we will recommend whether bankruptcy is an option and, if so, which bankruptcy chapter is right for you and your situation.
Basically, there are three main types of bankruptcy: chapter 7, 11, and 13. The numbers refer to the specific section of the U.S. Bankruptcy Code that provides for the particular case. The most common types for individuals are chapter 7 and chapter 13. (Businesses may not file chapter 13).
Chapter 7 is also called a “liquidation case” which means that in exchange for you getting a discharge of most or all of your debts (meaning you no longer owe them), you must turn over certain property (called non-exempt property) to the Chapter 7 trustee. The trustee is the person who is like an umpire in your case. He is appointed by the court to oversee the administration of the case on behalf of creditors. The law allows you to keep or protect certain property in order to have a fresh start after bankruptcy. You cannot be forced to give up this protected property which is referred to as exempt property.
In most chapter 7 cases, all property is exempt, so that you can keep all of your property. These types of cases are called “no asset” cases because there are no assets available above and beyond the exempt property from which to pay creditors.
If you have more property than can be exempted, you will have non-exempt assets which you may lose in a chapter 7 case, but you would get to keep in a chapter 13. (That is why it is important to disclose all of your assets and all of your property so that your attorney can determine which type of bankruptcy would allow you to keep the most property). A trustee may sell non-exempt assets and use the money to pay creditors. Sometimes there is not enough money to pay for anything more than the costs of administering your case, leaving nothing to creditors.
The big advantage to chapter 7 is that you can discharge or wipe out most, if not all, of your unsecured debt (except for non-dischargeable debts) including credit card debt, medical debt, store card debt, gas card debt, judgment debts or deficiency judgment debts. You never have any future legal obligation to repay these debts.
Non-dischargeable debts cannot be discharged. They include: debts for child support or alimony, certain types of tax debt, debts incurred through fraud, certain criminal fines/penalties, and debts incurred through bad acts or bad behavior (DWI/DUI’s, embezzlement, fraud, etc.)
Chapter 7 is only for certain types of debtors—that is, not everyone can file a 7. Chapter 7 is like a movie theater. If a corporation wants to liquidate or shut down, it can file a chapter 7 automatically, it gets a ticket and can go in; it need not qualify. Individuals, however, have to get a ticket to get into the movie (chapter 7). Whether you get a ticket depends on a complicated financial formula called “the means test” which looks at your monthly income, your family size, where you live, and your monthly expenses. If you make under a certain amount of gross income for your size household, you automatically get a ticket and can get into the movie/chapter 7. If, however, your gross income from all sources is above the magic number, the Court will examine your gross income and certain allowable living expenses, and if you have less than the threshold limits of disposable monthly income, you can still get a ticket and can go into the 7. However, if you have more than the threshold limit of disposable monthly income, the Court will presume that you have enough money to pay back a portion of your debt to your creditors, and therefore you will not get a ticket into chapter 7, but will be forced to file a chapter 13 instead.
Chapter 13 is the repayment bankruptcy. If you are behind on your mortgage or car payments, you cannot file a 7, you must file a chapter 13 which will allow you to make up missed payments and pay them out over time. Chapter 13 is also for people with assets which can’t be protected in a chapter 7.
In a 13, the debtor promises to pay all or part of his or her debts from future income over a 3-5 year period. If the Court approves the debtor’s repayment plan, the debts can be paid in this manner even over the objection of some creditors. If the debtor makes these plan payments over time, he or she gets to keep all of his or her property. You must continue to make plan payments in order to keep your property (and stay in bankruptcy).
If you can’t continue making plan payments (maybe you lose your job, your hours are reduced, you get sick, or have unexpected new debts that must be paid) until the end of your plan, you can lose your property, you can lose the protection of the bankruptcy, and your case can be dismissed as if you had never filed bankruptcy (allowing creditors to pursue you again for debts or to collect their collateral).
Our firm focuses mainly on chapter 7 bankruptcy. Should you need to file a chapter 13 case, we will be happy to refer you to an attorney who handles chapter 13 cases in your area.
The only way to know for sure which type of bankruptcy you may be eligible for is to talk with an attorney.
Lucy Hebron represents clients in East Texas counties: Camp, Cass, Harrison, Marion, Upshur, Anderson, Cherokee, Gregg, Henderson, Panola, Rains, Rusk, Smith, Van Zandt and Wood and the following cities: Pittsburg, Linden, Marshall, Daingerfield, Gilmer, Palestine, Jacksonville, Longivew, Arp, Athens, Brownsboro, Carthage, Overton, Emory, Henderson, Kilgore, Tyler, Bullard, Elkhart, Frankston, Rusk, Mt. Enterprise, Gun Barrel City, Canton, Quitman, Hideaway Lake, Lindale, Whitehouse, Troup, Winona, Van, Ben Wheeler, Grand Saline, Fruitvale, Edgewood, Wills Point, Quitman, Mineola, Hawkins, Yantis, Alba, Tatum, Holly Lake Ranch and Winnsboro.
We are a debt-relief agency. We help people file for bankruptcy under the Bankruptcy Code.
The information on this site is for general information only. Nothing on this site should be taken as legal advice for your individual case. You should consult an attorney for advice on your own situation.