Bankruptcy is a process under the supervision of the federal bankruptcy court geared to help individuals as well as business entities eliminate or repay debts. The most common types of consumer bankruptcy filed is Chapter 7 “liquidation” or Chapter 13 “reorganization”.
In a Chapter 7, the debtor wipes out all dischargeable debts in a relatively short amount of time. Any assets that are not protected (exempt) are liquidated for the benefit of the creditors. A Chapter 13, on the other hand, is more complex and involves a repayment Plan in which some, or all debts are paid back in a 3 – 5 year time period.
When a bankruptcy is filed, the Automatic Stay goes into effect immediately and “stays”, or prohibits your creditors from any form of debt collection activity. This includes phone calls, collection letters, bills, garnishments, foreclosures or lawsuits.
The Automatic Stay goes into effect immediately upon filing a Chapter 7 or 13. The automatic stay is perhaps the most powerful tool at the debtors disposal, as it “stays”, or stops your creditors from attempting to collect a debt. When you see advertisements that tell you bankruptcy will stop creditors from calling you, sending you mail, stop garnishments, repossessions and foreclosures, they are talking about the automatic stay.
Bankruptcy is incredibly powerful, but it does have it’s limitations. The most common types of debts that are eliminated in bankruptcy are credit cards, medical bills, repossession deficiencies, payday loans, old utilities, most civil judgments and even some tax debts. The most common types of debts that are NOT eliminated in bankruptcy are student loans, court fines/fees, overpayment on unemployment benefits, most tax debts and domestic support obligations.
Most people get relief under the Bankruptcy Code; however, certain debts will never go away. For more information see Debts That Can Follow You to Your Grave. Generally speaking, debts that are discharged, or wiped out, include credit cards, medical bills, utilities, repossession deficiencies, certain tax debts. Civil Judgments can also be wiped out if the underlying debt was dischargeable, such as an old landlord suing for past due rent, or a collection company suing for an old credit card.
To understand which chapter may be right for you, take a look at Chapter 7 vs 13. A quick answer; however, is this: if you are behind on a car payment, facing foreclosure, getting garnished and have no way to save up money for a Chapter 7, then you may want to consider Chapter 13. A Chapter 7 is great if you have medical bills, credit cards, etc and you have the ability to pay upfront. It is important to understand that no website will be able to definitively answer this question. You really need to speak to a lawyer who does this for a living.
Do you have large credit cards that seem to never go away? Is your car payment getting paid later and later in the month? Have you missed a mortgage payment? Are you starting to get collection letters for medical bills you cant pay? If you answer yes to any of these, chances are you need to speak to someone about your options. This does NOT mean that you absolutely should file for bankruptcy, but it may mean that you are financially in trouble.
To speak to a competent, non-profit organization about credit counseling and your potential options, contact HCCI.