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Bankruptcy Basics

Bankruptcy law allows individuals protection from their creditors and relief from debt. The type of protection that is extended to an individual will depend on the type of bankruptcy that is filed. The two types of bankruptcies for individuals are known as Chapter 13 Bankruptcy and Chapter 7 Bankruptcy. While they offer similar protection from collections, each bankruptcy is made unique by the types of people who qualify for them, the types of problems they help solve and what they each require for successful competition. Universally, both Chapter 13 Bankruptcy and Chapter 7 Bankruptcy help to abate creditor harassment, and prevent direct collection efforts by creditors.

Both Chapter 13 Bankruptcy and Chapter 7 Bankruptcy stop creditor harassment, and prevent direct collection efforts by creditors once the bankruptcy case is filed. Upon the filing of any personal bankruptcy a legal fiction created by court order goes into affect automatically called the “automatic stay.” The automatic stay is a court order that provides that creditors are “stayed” or prevented from collecting against you. Creditors are prevented from undertaking all collection activates including calling you directly, sending you letters, filing a lawsuit, freezing your bank account, starting or continuing a garnishment and any other activity that is considered trying to collect on a debt. Even creditors who hold debts that bankruptcy cannot discharge, such as government fines, most taxes, tickets, student loans, debts obtained by fraud and past due child support must stop their collection efforts during the time your bankruptcy is pending.

A Chapter 7 is known as a “liquidation” or “fresh start” bankruptcy. Generally, if you successfully complete a Chapter 7 Bankruptcy, most types of your unsecured debts will be eliminated, or discharged. An unsecured debt is a debt that does not have any collateral. The debt isn’t attached to a piece property as a lien. The most common types of unsecured debts are credit cards, medical bills, personal loans, personal signature loans, utilities and payday loans. All of those types of debt can be eliminated in a Chapter 7 Bankruptcy. Even those debts that are subject to lawsuits and judgments can be discharged. Some debts in a Chapter 7 Bankruptcy will not be discharged. Debts for student loans are usually not discharged in bankruptcy, domestic support orders are non-dischargeable in bankruptcy, and debts created by causing an injury in an automobile accident when operating a motor vehicle while intoxicated are non-dischargeable. If you want to keep property, such as a car or house, you will need to keep paying the payments on those. However, if one no longer wants to keep paying on a car loan or a mortgage and you are willing to surrender the property, even secured debt like a car loan or mortgage can be eliminated.

Chapter 13 Bankruptcy is a wage earner reorganization. It is a court-approved, court-supervised and court-enforced, structured repayment of some, or all, of your debts over 36 to 60 months. Similar to a Chapter 7 Bankruptcy, the filing a Chapter 13 Bankruptcy will stop all collection of your creditors, including lawsuits, garnishments and harassing phone calls. The chapter 13 allows people to reorganize and consolidate all debt into one payment through the court. Chapter 13 allows you to repay less than what is contractually owed to creditors. It is possible to reduce balances on car loans in some circumstances, force mortgage companies to spread out repayment on past due mortgage payments over the life of the plan, and allows you to repay a percentage on the dollar of general unsecured debt with no interest. Chapter 13 is typically appropriate when someone wants to save a house from foreclosure or a vehicle from repossession. The amount of the chapter 13 plan payment will be determined by your budget and your assets.

A good bankruptcy attorney like the attorneys at helpmylife.com can analyze your situation and give you recommendations about which bankruptcy is best for your situation. There are a lot of exceptions and rules related to each type of bankruptcy, so this summary is certainly not meant to provide any specific legal advice to you, but only to give you an overview, so it is important to discuss your specific situation with an attorney as soon as you start to struggle to pay your debts.