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Personal Bankruptcy • Business Bankruptcy • Debt Resolution
The Gibbs Law Firm, APC has been representing debtors and creditors in insolvency matters since 1996.
With an emphasis on hands-on client representation, The Gibbs Law Firm, APC distinguishes itself from the myriad of “bankruptcy mill” firms looking only to capitalize on the recent economic down-turn. Below is more information about two chapters of the bankruptcy code most often associated with individual, small and medium sized business insolvency matters.
Chapter 7 Bankruptcy
When discussing the various types of bankruptcy an individual, a small or medium-sized business can file to protect itself from creditors, most often people think of Chapter 7 – a liquidation.
If you believe that you need to evaluate your debts and potentially bankruptcy, contact The Gibbs Law Firm or learn more about Chapter 7 bankruptcy below.
Chapter 13 Bankruptcy
Chapter 13, while somewhat less common that Chapter 7 Bankruptcy, is a powerful tool which allows for the adjustment of debts for an individual with regular income. Among the many advantages of Chapter 13 are the fact that a homeowner may be eligible to strip, or remove a second mortgage from their home; a debtor who owns a car that is underwater may be eligible to cram-down the loan amount to the fair market value of the vehicle; a debtor who has non-exempt assets may be able to avoid the liquidation of those assets, as would be the case in a Chapter 7 bankruptcy; and a debtor may actually be able to repay most or all of his or her outstanding obligations through a plan of repayment.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
In Chapter 7 bankruptcy, you ask the bankruptcy court to discharge most of the debts you owe. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection (see below), sell it, and distribute the proceeds to your creditors.
In Chapter 13 bankruptcy, you file a repayment plan with the bankruptcy court to pay back all or a portion of your debts over time. The amount you'll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own.
Which should I use--Chapter 7 or Chapter 13 bankruptcy?
If you meet the eligibility requirements for both types of bankruptcy, then you can choose the type of bankruptcy that makes the most sense for your situation. However, you may not have a choice.
Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements; Chapter 7 is a popular choice because, unlike Chapter 13, it doesn't require filers to pay back any portion of their debts.
Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period.
However, Chapter 13 might be a better choice, depending on your situation. For example, if you are behind on your mortgage and want to keep your house, you can include your missed payments in your Chapter 13 plan and repay them over time. In Chapter 7, you would have to make up the whole past due amount right away -- and you might lose your house if your equity exceeds the exemption amount available to you.
What exactly is bankruptcy? Will it wipe out all my debts?
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidation" (Chapter 7) or "reorganization" (Chapter 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford.
When you file either kind of bankruptcy, a court order called an "automatic stay" goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.
Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.