Bankruptcy – A Fresh Start!

Chapter 7

One of the purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." To qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. A debtor under Chapter 7 must, within 180 days before filing, receive credit counseling from an approved credit counseling agency either in an individual or group briefing. After filing, a debtor must also complete an instructional course in personal financial management prior to being discharged.

After filing of the bankruptcy petition, an impartial Chapter 7 trustee will be appointed to your case. Also, as a result of your filing bankruptcy, your creditors are afforded an opportunity to question you so the bankruptcy court will schedule a 341 meeting of creditors at which you will have to appear with your attorney. The 341 meeting of creditors is typically held at the bankruptcy court or the Office of the U.S. Trustee. After the 341 meeting of creditors, the trustee will determine if you have any assets that are available for distribution to your creditors. If there are no available assets, you will be discharged of the debts listed in your bankruptcy petition.

Chapter 13

A Chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.

Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Perhaps most significantly, Chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. However, they must still make all mortgage payments that come due during the Chapter 13 plan on time.

Also, as in Chapter 7, you must receive, within 180 days before filing, credit counseling from an approved credit counseling agency either in an individual or group briefing. After filing, a debtor must also complete an instructional course in personal financial management prior to being discharged.

After the filing of the Chapter 13 petition, an impartial Chapter 13 trustee will be appointed to your case and as in Chapter 7, a 341 meeting of creditors will be scheduled. A Chapter 13 debtor is also required to file with the bankruptcy court a repayment plan outlining the amount to be paid to the trustee each month for the arrearages. Thereafter a hearing to confirm the repayment plan will be scheduled.