There are two main types of bankruptcies that generally apply to consumers: Chapter 7 and Chapter 13. Chapter 7 is what most people think of as bankruptcy – it gives you a clean slate without paying your debts. Chapter 13 requires monthly payments for several years. It is most often used to save a house from foreclosure. You can read more below about each bankruptcy.
In addition to the information below, bankruptcy has an enormous number of rules and laws that apply to it. For this reason, bankruptcy is not right for everyone. We strongly advise anyone considering bankruptcy consult with an attorney first.
Chapter 13 Bankruptcy
Chapter 13 bankruptcies or “reorganizations” can allow a person to take up to five years to reorganize and pay off or discharge their debts.
CLS provides advice about chapter 13 bankruptcy, and sometimes represents individuals in certain circumstances. A person files bankruptcy under chapter 13 of the United States Bankruptcy Code when they are attempting to keep property, such as their home, which a creditor is threatening to take, because they have defaulted on an agreement that uses the property as security.
Chapter 7 Bankruptcy
Chapter 7 bankruptcies, or “liquidations,” only take only four to six months to discharge a person’s debts. For the average person who is feeling swamped with credit card debt, unpaid medical bills, car payments they can no longer afford, or problems with social security “overpayments,” a Chapter 7 bankruptcy can be an real solution, allowing the debtor to discharge most or all of this kind of unsecured debt but still keep the clothes on their back, the tools they work with, the car they use to get to work and the house they live in.
Additionally, one of the major benefits of bankruptcy is the “automatic stay” – meaning that once the bankruptcy petition is filed in court, almost all your creditors and bill collectors are automatically required by law to stop taking any action to collect your debts. While you are in bankruptcy, the stay puts a stop to harassing phone calls, demand letters, visits from collection agents, and even legal actions filed against you to collect debts – giving you time to address your debts though he bankruptcy court.
However, while Chapter 7 bankruptcy is often faster, it doesn’t fix all debt problems. It usually does not clean away federal tax debts, student loans, child support, criminal debts, and other special debts. Chapter 7 does not save a house from foreclosure, nor does it save you from an eviction. Secured debts (car loans, mortgages, etc.) are also special. You have to keep paying the monthly payment on that loan if you want to keep the security (the car, house, etc.) linked to that loan.
For more information on filing Chapter 7 bankruptcy, see “How to File a Chapter 7 Bankruptcy.”