Bankruptcy laws enable debtors to have a fresh start with their finances. Filing for bankruptcy helps a filer pay all or most creditor debts and obtain a bankruptcy discharge. For this reason, a bankruptcy filing helps an individual to secure his or her financial future. Struggling with debt and financial problems is very difficult and complicated. This is why consulting a bankruptcy attorney is necessary. Good bankruptcy attorneys will assist you throughout your bankruptcy proceeding.
While filing bankruptcy may be able to wipe out your debts, keep in mind that there are different types of debt. These are often grouped as unsecured debt and secured debt. Unsecured debts are generally the dischargeable type of debt. This category includes credit card bills and medical bills. In contrast, the types of debt that are non-dischargeable include secured debts, child support, alimony, student loan debt, and certain tax debt.
If you are considering bankruptcy, knowing the different types of bankruptcy is important. It will help you decide on which among the bankruptcy options will suit your bankruptcy case. Bankruptcies are usually either under Chapter 7 (liquidation bankruptcy) or Chapter 13 (reorganization bankruptcy)
Filing Chapter 7 Bankruptcy
Medical debt and credit card bills are considered unsecured debts that are dischargeable when you file bankruptcy under Chapter 7.
The main objective when you file a petition for bankruptcy is to obtain a bankruptcy discharge. This means that the bankruptcy court will eliminate the debtor’s legal responsibility to pay off such debts.
Take for example a case where there is a significant amount of unpaid debt from an institution. Any efforts to recover the debt may be made by this lender. This includes emails, calls, litigation, and other ways to remind the debtor of his or her responsibility to pay back the said debt.
Many creditors are inclined to acknowledge partial payments because they know that they have no other means of collecting the existing balance. In some cases, creditors agree to delete the account from the credit report of the debtor. Bankruptcy lawyers can help explain this further and assist you in negotiating such agreements.
Other relevant arguments include collateral implications of an accrued obligation that is not removed by the bankruptcy discharge. To relate with the previous situation, if an individual owes money, liens on personal property generally remain. An experienced bankruptcy lawyer will be able to help you in these types of bankruptcy cases.
Filing Chapter 13 Bankruptcy
Bankruptcy cases where debts involve security agreements often include mortgage payments and housing or car loans. In a Chapter 7 case, this is where filers would likely encounter problems with their secured debts.
Here, if a debtor fails to make payments, the collateral may be repossessed by the creditor. As such, attempting to have them discharged is seldom the most appropriate way of dealing with secured loans. Although the discharge prohibits secured creditors from approaching a debtor to seek payment, the debt must still be paid to keep the collateral.
Debt relief through Chapter 13 gives a filer up to five years to pay secured loans. During this period, an automatic stay is in place. As a consequence, debt collectors are not permitted to take any actions against the debtor unless the judge gives permission. In most cases, filers from Chapter 13 get themselves sufficient time to keep up with monthly payments for these.
The debt repayment plan you shall propose will be based on your monthly income. As such, make sure to draft a payment plan that is realistic and within your budget. Even if proposed payments are less when compared to what the lender requests, debtors shall pay only what they can afford.
“Chapter 20” Bankruptcies
While “Chapter 20” bankruptcies are not officially part of the Bankruptcy Code, they are often “filed” by people who have substantial amounts of both secured debt and unsecured debt. In this type, debt relief in Chapter 7 and Chapter 13 are incorporated.
This is how it works. Once an individual has filed a petition in bankruptcy under Chapter 7, within six months, the judge would normally have signed the approval for a discharge order. This will eliminate legal responsibility to pay unsecured debt. After the approval for a bankruptcy discharge, to deal with secured debts, the debtor then files a bankruptcy petition under Chapter 13. It is easier to make an appropriate debt repayment plan and keep up on making mortgage payments and other commitments with the extra budget.
A debtor granted a bankruptcy discharge through Chapter 7 is not allowed to obtain a discharge under Chapter 13 for four years. This argument is generally inapplicable because the majority of debtors who file reorganization bankruptcy do so to settle problems with secured loans that are typically non-dischargeable.
Essentially, it is not a big deal even though the debtor is not qualified for a subsequent bankruptcy discharge. After all, secured loans have already been taken care of in the previous Chapter 7 bankruptcy declaration.
Different bankruptcy forms wipe out different types of debt. For legal help and assistance, talk to us at Phoenix Fresh Start Bankruptcy Attorneys for a free consultation. Call 602-598-5075 today.