Chapter 7 (straight bankruptcy)
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to eliminate (discharge) your debts in exchange for giving up property, except for exempt” property”, the law allows you to keep. In most cases, all of your property will be found exempt. But the non-exempt property is sold, with the money distributed to creditors. If you want to keep the property such as a home or a car and are behind on mortgage payments or car loan, a chapter 7 case probably will not be the right choice for you. This is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. If your income is above the median family income in the state, you may have to file a Chapter 13 case. Median household income is different in each state. In California, the median income for a family of four is approximately $79,000. Higher income consumers must fill out forms ”means test” requiring detailed information about income and expenses. If the forms show, based on the rules of law, they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that you can not file a chapter 7 case, unless there special extenuating circumstances. We know this sounds complicated. Please call our office for a free consultation and we can determine which bankruptcy is best for you.
Chapter 13 (reorganization)
In a chapter 13 case you present a ”plan” showing how you will pay some of your debts over a period of three to five years. The most important thing about a Chapter 13 case is allowing you to keep valuable property, especially your home and car that would otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with an extra payment to catch up with the amount you have fallen behind. You should consider filing a Chapter 13 plan if:
- Own your home and are in danger of losing it because of money problems
- Are behind on payments, but can catch up if given some time
- Have valuable property which is not exempt, but you can afford to pay creditors from your income in time. You will have to have enough income during Chapter 13 case of to pay your bills and and pay back some of your debts.