Individuals who file bankruptcy are named “Debtors.” Debtors who have consumer debts or business guaranty debts usually file either
a chapter 7 bankruptcy or a chapter 13. Which chapter is more beneficial for the client depends on the debts, assets, and income of the individual. These are items that I explore with a client during his or her free consultation.
Each chapter has its advantages and disadvantages. When considering these along with the rules set out by the bankruptcy code and the goals of the client, myself and the client can map out a plan for what option is most advantageous to the client in achieving the desired debt relief while trying to cause the least disruption in the client’s life as possible.
A chapter 7 bankruptcy is appropriate for a business owner dealing with the creditors chasing him or her after the closing of a business or an individual who has very little income or assets. The simplified way to think of a chapter 7 is that it is a going out business sale for a person. The filing provides quicker relief than a chapter 13 bankruptcy plan, however can be a very stressful process. The chapter 7 trustee is appointed to the chapter 7 case and will be verifying and investigating the information disclosed in the bankruptcy filing for veracity and completeness. The chapter 7 trustee is a facilitator for the case, but also makes a certification for the creditors that the debtor has no assets and that the debtor, or debtors, truly do not own anything above his or her exemptions to provide for payment to the listed creditors.
A chapter 13 bankruptcy is a reorganization for a person. An oversimplified way to explain it is a mini-chapter 11 for a person. A chapter 13 bankruptcy is for individuals who do own assets that they want to protect from creditors and the chapter 7 trustee and who have income. A chapter 13 formulates a payment plan that pays all or some of the debtor’s creditors. A chapter 13 takes control of the debtor’s finances and allows the debtor to make decisions about whether a car lease is affordable going forward, whether to keep a home or surrender the property to the bank, and prevent creditors from taking action to progress with lawsuits or garnish the debtor’s bank accounts or paycheck. This plan payment usually provides for items that the debtor wants to keep and provide the amount to the unsecured creditors proscribed by the bankruptcy code which is routinely dramatically less than the amount the debtor owes. So, in other words, no a chapter 13 does not mean you have to pay everything back! It is a tool for a debtor to take back control and have some say on where the debtor’s money goes.