The Special Tools Of Chapter 7 And 13 Bankruptcies
When your finances have become unmanageable and it is apparent that you need to file bankruptcy, there are some aspects of filing that will help you to cope. These things may also enable you to have time to get your financial footing again, eventually.
The Automatic Stay
From the minute you file with the court clerk, you will be protected from your creditors with the automatic stay. Any actions such as evictions, foreclosures, and garnishments that they are in the midst of taking would be stopped until after your discharge, and many of these issues will be taken care of through bankruptcy.
Every state has a list of assets that you can claim as exempt, and you will be able to keep the items that fall under this list. There is also a list of federal exemptions, and some states allow you to choose whether to use theirs or the federal list.
Non Priority and Unsecured Debts
In chapter 7, any debts you have that are non-priority and unsecured will be discharged with your bankruptcy. Unsecured means that a creditor has no attachments or liens on any of your belongings as collateral. Non-priority debt is consumer debt such as credit card balances, back rent, past due utilities and more. However, if you have assets that are liquidated by the trustee, the money from them will be used to pay creditors.
With chapter 13, it is a little more complicated and based on two things: what your creditors would have received through a chapter 7 liquidation, which is usually not very much, and your disposable income as figured by the court. Your disposable income is considered the amount that is left over after you pay your necessary monthly bills to live such as rent, utilities, food, and insurance, etc.
From your disposable income, you will make monthly payments to the trustee and your debtors will be paid from that.
Chapter 13 Repayment Plan
A chapter 13 bankruptcy is essentially a workable repayment plan that lasts from 3 to 5 years and in many cases enables you to keep all or most of your assets or property. Any debts left after the end of the plan are discharged.
Curing Defaults and Lien Stripping
Sometimes people who are eligible for chapter 7 bankruptcy opt instead to file chapter 13 for various reasons. A chapter 13 filing and the resulting repayment plan will cure any defaults and enable you to continue to pay for certain assets, and be able to keep them.
However, you should be aware that in some cases, you can keep a home or a vehicle, even if you have loans on them, in chapter 7 bankruptcy.
Lien stripping in chapter 13 filings can be especially helpful to a homeowner who has more than one mortgage on their home. Your first or primary mortgage has precedence over any other loans on your house. If your house is worth less than what you owe on the primary mortgage, any secondary (junior) loans would be reverted to non-priority unsecured debts.
To see how these things may be helpful to you, you will need to consult a bankruptcy attorney like one from FactorLaw.