The decision to consider filing bankruptcy is never easy and is usually made after all other available options have been eliminated. Usually, our clients have done some research on their own before considering setting up a free confidential consultation. If you are considering filing for bankruptcy, I would highly suggest doing a bit of research on Chapter 7 and Chapter 13. Hopefully, this blog will assist in your research.
Chapter 7 is designed to help the honest, but unfortunate debtor discharges all his or her dischargeable debts. The debtor(s) must first qualify for Chapter 7 by passing the means test. Assuming they qualify for Chapter 7, we look at all income, expenses, assets, and debts. The most important factor is the debtor’s assets. The assets can be exempted (protected) by the debtor based upon available statutes, which ultimately protects these assets from creditor’s claims. Assets are not claimed as exempt are subject to liquidation by the Bankruptcy Trustee. Once those assets are liquidated (turned into cash), the Trustee uses that money to then pay the creditors.
Chapter 13 bankruptcies are known as a reorganization bankruptcy wherein a debtor proposes a plan of reorganization. The plan must tell all of the debtor’s creditors how they will be treated under the plan. Creditors can object to their treatment under the plan if they choose to. A debtor must also be able to fund the plan. Usually, a debtor will do this with future wages that will be earned after they file. Accordingly, the debtor must present a feasible budget to the court, which demonstrates their ability to meet all of their monthly obligations and still be able to make a payment to the Bankruptcy Trustee pursuant to the Plan of Reorganization.
There are many reasons why an individual would file Chapter 13 rather than Chapter 7. This is why I would strongly encourage everyone to speak to an experienced bankruptcy attorney before filing for bankruptcy protection. Over the years I’ve seen many mistakes made in the bankruptcy court that could have been avoided had the individual discussed their situation with counsel before filing.
