Chapters 7 & 13 Bankruptcy
The founding fathers of our country made specific provision for bankruptcy legislation in the United States Constitution. Congress then enacted the Bankruptcy Code to give honest but unfortunate debtors an opportunity for a fresh financial start.
The two most common forms of bankruptcy relief are known as “Chapter 7 Bankruptcy” and “Chapter 13 Bankruptcy.” Under Chapter 7, most of the individual’s debts are eliminated, and no further payment is made on them unless the individual voluntarily “reaffirms” specific debts (for example, car loans and mortgage debt). On the other hand, Chapter 13 is a debt consolidation program under which the individual makes regular monthly payments to a Chapter 13 Trustee for a period of between three and five years; the Chapter 13 Trustee spreads the money among the individual’s creditors. Chapter 13 is most useful where a person has fallen behind in his or her mortgage and/or car payments. If certain conditions are met, the individual may be able to spread out his or her missed mortgage and/or car payments over a period of up to five years.
Sweeping changes to the Bankruptcy Code took effect in October, 2005. Most newspaper and television news reports which came out at that time gave the impression that Chapter 7 Bankruptcy was essentially a thing of the past. Not true. Most people who qualified for Chapter 7 relief before October, 2005, still qualify. There are now more hoops to jump through, and the process has become more cumbersome — nevertheless, Chapter 7 relief is still available for most people who need it. Chapter 13 relief is also still available for people who wish to save homes from foreclosure and cars from repossession, or who have debts that are not dischargeable in Chapter 7 (for example recent income tax debt).
Most people exhaust every other available option before filing Bankruptcy. For most people, Bankruptcy is the very last resort and is turned to only when:
- Efforts at debt consolidation have failed;
- Hopes for increased income have faded;
- All savings have been depleted;
- The individual is exhausted by letters and harassing telephone calls from creditors and collection agencies;
- The individual and his or her family are emotionally drained by the constant pressure of too many bills to pay and too little money to pay them;
- The individual is on the brink of being sued or garnished and there appears to be no way short of bankruptcy to prevent this from happening;
- The individual is on the brink of losing his or her home to foreclosure, and all efforts to make payment arrangements with the mortgage company have failed.
If you feel you have reached the end of your financial rope, please give us a call at 760-851-4057. We will gladly help you explore your options. There is no charge for an initial consultation.