Tamsen Hays
Warren R. Ross
There are two types of bankruptcies that individuals typically file: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is a liquidation of debt. Most unsecured debts, like credit card debt and unsecured loans, are discharged and wiped out. Some unsecured debts, such as student loans, taxes, alimony and child support, are non-dischargeable and the debtor remains obligated to pay them. Secured debts, like a home mortgage or a vehicle loan, are usually either reaffirmed or surrendered. Reaffirmation allows the debtor to keep the property or collateral and continue to make regular payments on the debt, assuming the debtor can afford to do so. Surrendering property allows the debtor to give the property or collateral back to the creditor and wipe out any deficiency that may remain on the debt after the creditor sells the collateral.
A debtor is entitled to exempt certain property from the bankruptcy estate. This means that a debtor is allowed to keep a certain amount of property. In a Chapter 7, non-exempt property may be liquidated and sold off to pay creditors. A Chapter 7 bankruptcy is finished within 4-6 months from the filing date.
A Chapter 13 bankruptcy is a court-supervised repayment plan. The debtor usually pays a certain percentage of the debts owed to creditors over 3-5 years. In a Chapter 13 bankruptcy, a debtor can catch-up on a mortgage in default and stop a foreclosure before the sale occurs. Sometimes, second mortgages can be stripped off and treated as unsecured debts if the value of the home is less than the amount owed on the first mortgage. Additionally, vehicle loans may be modified. The interest rate on a vehicle loan may be reduced. Depending on the date the vehicle loan was incurred and the present value of the vehicle, the vehicle loan may be split into secured amount and an unsecured amount allowing the debtor to pay less for the vehicle.
The amount of money paid to unsecured creditors in a Chapter 13 bankruptcy is based upon the debtor's income. However, even if a debtor would be required to pay 100% to unsecured creditors in a Chapter 13, it may be better to file bankruptcy than not. Once a bankruptcy is filed, interest on unsecured debts does not continue to accrue, which allows the debtor to pay off his creditors over the life of the repayment plan without escalating interest.
Businesses commonly file Chapter 7 or Chapter 11 bankruptcies. A Chapter 11 bankruptcy is a reorganization of debt. Under Chapter 11, a business's debts are reorganized in an effort to save the business. Under Chapter 7, the business's assets are liquidated and the business is dissolved.
Eligibility for bankruptcy depends on the debtor's income, expenses, assets and debts. We offer free bankruptcy consultations to evaluate each individual's eligibility and determine which chapter of bankruptcy is appropriate, if any. For more information or to schedule a consultation please contact our office at 941-639-2171.
Additional information is available on the Bankruptcy Court's website at http://www.flmb.uscourts.gov/faqs/default.htm along with informative videos about the bankruptcy process at http://www.flmb.uscourts.gov/bankruptcybasics/default.htm.
