Most people have many misconceptions regarding the Bankruptcy process. Few people fully understand what a Bankruptcy is, and even fewer individuals understand how the Bankruptcy process works. Two (2) of the most common types of Bankruptcies are a Chapter 7 Bankruptcy, and a Chapter 13 Bankruptcy. A Chapter 7 Bankruptcy is the most common type of Bankruptcy, and it is the bankruptcy process by which many people are familiar with or have known someone who has filed one. A Chapter 13 Bankruptcy is less common than a Chapter 7 Bankruptcy, however more and more people have been filing Chapter 13 Bankruptcy due to that fact that they make too much money to file a Chapter 7 Bankruptcy, and no longer qualify due to the Bankruptcy law changes in 2005, plus people have been filing Chapter 13 Bankruptcies in order to get rid of their 2nd mortgage payment ever since the housing crisis has made so many houses become “upside down” on their equity.

A Chapter 7 Bankruptcy is most commonly referred to as a “Clean-Slate” Bankruptcy, or a “Fresh-Start” Bankruptcy. In a nutshell, a Chapter 7 Bankruptcy wipes out all of your unsecured debts (i.e., Credit Cards, Medical Bills, Personal Loans, and Deficiency Balances on Repossessions), and does nothing to Secured debts (i.e., Car Payments, Mortgages, or Boat Payments). A chapter 7 Bankruptcy will not affect your Secured Debts, except that these secured debts (mortgage, car loan payment) will be subject to the automatic stay (halt of all collections and repossession efforts) which goes into effect during the Bankruptcy Process (usually for 90 days). Outside of subjecting secured debts to the automatic stay and halting collection efforts for approximately 90 days, a Chapter 7 Bankruptcy does not have any effect on secured debts. Therefore, if you are current on your mortgage and you pay your house payments (secured debt) when you file a Chapter 7 Bankruptcy, then you keep your house. If you pay your car payments and are currently on those payments when you file a Chapter 7 Bankruptcy, then you keep your car. Conversely, if you are not current on your car or house payment and you do not pay them, then Chapter 7 Bankruptcy will not stop the banks from repossessing or foreclosing on those security interests.

A Chapter 13 Bankruptcy is commonly referred to as the “Wage-Earner” Bankruptcy. This type of Bankruptcy is not as common as a Chapter 7, yet many more people have been filing it do to being disqualified from filing a Chapter 7, and/or there house is upside down and they want to get rid of their 2nd mortgage payment. A Chapter 13 is a repayment plan. A person basically pays a monthly payment based on the amount of disposable monthly income they have to the Bankruptcy trustee, and the trustee in turns takes that money and pays out different creditors a portion of the debt that is owed to them. Unlike the Chapter 7 Bankruptcy process, which only takes approximately 90 days to complete, the Chapter 13 Bankruptcy repayment plan lasts either 3 or 5 years. The debtor is forced to pay monthly payments to the trustee for usually 5 years (60 months), at which time at the completion of the plan the Debtor is granted a discharge of the remaining unpaid balance of their unsecured debts (their credit cards and other unsecured debts which were not paid off in the plan are forgiven). Also, if a person had a 2nd mortgage on a house in which the house was worth less than the 1st mortgage’s balance, thus the 2nd mortgage was basically unsecured, the trustee can strip the 2nd lien and wipe out the debtor’s obligation to pay back the 2nd mortgage in the Chapter 13 Bankruptcy.

Choosing whether to file a Chapter 7 or a 13 can be a very complicated and difficult process. You need the help of a trained lawyer to assist you in either of these processes. Call 1-619-272-2499 today to speak with one of our trained lawyers to set up a FREE consultation to see if you qualify, and to determine which route to take.