Consumer bankruptcy offers the chance to eliminate many of your debts, and rebuild your finances. If you have large debt obligations caused by job loss, business failure, large medical bills, or other unexpected events, then you may want to consider filing for bankruptcy. There are two types of consumer bankruptcy relief available under the bankruptcy code. The first type of consumer bankruptcy is Chapter 7, and the second is Chapter 13. Let’s look at each of these types of consumer bankruptcy in greater detail.
Chapter 7
Chapter 7 is the most common type of bankruptcy and allows you to eliminate nearly all of your debts. In Chapter 7 consumer bankruptcy cases, you are usually allowed to keep your home and car (as long as the car is secured debt), provided you continue making payments on the loans. Depending on your financial situation, Chapter 7 bankruptcy can eliminate medical bills, credit card debt, personal loan debt, judgments (unless related to fraud or criminal matters), deficiency debt on foreclosures and repossessions, and personal injury debts (except criminal injury debt, and DUI fines).
Chapter 13
The second type of consumer bankruptcy is Chapter 13. In a Chapter 13 bankruptcy, your debt will be consolidated, and a monthly repayment plan will be enacted. Under Chapter 13, you will be required to make monthly payments on your total debt obligations to a trustee. The amount of the monthly repayment amount (and the length of the repayment period) is calculated based on your monthly income and expenses – and the total amount and nature of your debts.
In most cases, the repayment period is typically three to five years. Chapter 13 can be used for restructuring car loans (to save a vehicle from repossession), and for repaying back amounts (arrears) owed on your mortgage. If you do not qualify to file Chapter 7, then your only remaining bankruptcy option is Chapter 13. In certain situations, Chapter 13 can be used to temporarily stop or halt an impending foreclosure. Consult with an experienced consumer bankruptcy attorney to determine whether Chapter 7 or Chapter 13 is right for you.