Each bankruptcy case is vastly different from the last and from the next. It may seem all too easy to fill in a bankruptcy petition or buy a trust or will online. But the documents are not the service. Bankruptcy is much more than filling in forms and getting a discharge. Bankruptcy, litigation and estate planning are mostly about choosing, planning, thinking, and using strategy. Only an experienced bankruptcy attorney like Steven K. Brumer with knowledge of the law and the way your jurisdiction is handling certain issues is in the right position to counsel and guide you along.
Bankruptcy and estate matters are intensely personal and emotional. Some believe bankruptcy carries with it a stigma of shame and failure. Not so. Bankruptcy laws offer the client a fresh start when things go in unexpected and unfortunate directions. The law recognizes that debt can be healthy and is even necessary in certain circumstances. Few people can pay cash for a house or start a business on a shoestring budget. But sometimes our personal circumstances spiral out of control despite the best of intentions. Most clients are not out spending money they didn’t have on luxuries but rather were using credit to survive when they faced adversity or hit a wall professionally or medically. Regardless of how you get to this point, you will never be judged, nor lose sight of the way that these matters affect our relationships with others and our feelings about ourselves.
Types of Bankruptcy
There are two basic types of bankruptcy that are available for most consumers: Chapter 7 and Chapter 13. Other chapters are available and sometimes advised but these two chapters encompass the options available and advisable for most clients. There are whole books devoted to the differences between the two chapters and how they work. The brief description below only scratches the surface of some of these differences. Every case requires a complete analysis based on that client’s individual circumstances. With that disclosure out of the way, here are some basic descriptions of the main two bankruptcy chapters:
Chapter 7 or “Straight Bankruptcy”
In a Chapter 7, the client obtains a discharge of all dischargeable debts a few months after filing. There is no need to pay back any unsecured debts (like credit cards and medical bills). An unsecured debt is a debt for which the lender can’t repossess anything. Your auto loan is a secured debt, as is your mortgage because if you don’t pay, you’ll lose the property. Your credit card and dental bill are not because dentists will not repossess your fillings – at least not yet.
With some exceptions, certain debts are generally non-dischargeable like student loans, spousal and child support and taxes, but a Chapter 7 will discharge any dischargeable debts at the end of the proceeding, which usually lasts no more than a few months.
Although much of your property will be exempt, you do stand to lose some non-exempt property if the bankruptcy trustee chooses to seize and sell it. For example, if you have a particular piece of personal property that is easily transported and sold (like a piece of art, for example), if it can’t exempt it, it might be lost. You need not lose any property, however, in a Chapter 13.
Chapter 13 or “Reorganization”
A Chapter 13 involves making some payments to your unsecured creditors over the life of the Chapter 13 repayment plan that your attorney will draft and prepare. This is why having the right counsel is so important. Your unsecured creditors in a Chapter 13 proceeding will be entitled to receive no less than they would have received in a Chapter 7 proceeding if you non-exempt property were seized and sold.
Chapter 13 permits a client to cure any arrearages on a mortgage if he or she chooses to keep their real property. For example, if you’re five months behind in your mortgage and the payment is $2,500 per month, we can propose a plan that pays back that arrearage of $12,500 over the life of the plan (36 or 60 months, depending on your income).
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