Often, when faced with mounting financial difficulties and debt that seems impossible to deal with, people consider bankruptcy. Depending on your circumstances, one of the different kinds of bankruptcy filings may be right for you.
Chapter 13 Bankruptcy: Reducing Your Debts
Chapter 13 bankruptcy, often called the “wage earner’s bankruptcy,” will reduce your debt but require you to repay the discounted debt. The debtor proposes a repayment plan, offering to repay less than 100 percent of the amounts owed to creditors, and the bankruptcy court approves the proposal or reworks the plan to allow the debtor to repay a discounted amount. A debtor must have a regular income to qualify. Lower-income debtors can qualify for a three-year repayment schedule, thus repaying a smaller percentage of their debts, while debtors with higher incomes will be on a five-year repayment schedule, repaying a higher percentage.
Chapter 7 Bankruptcy: Eliminating Many Debts
The other option for individual debtors is a Chapter 7 bankruptcy. As long as a debtor qualifies for a Chapter 7 filing under the Bankruptcy Code, almost all debts are discharged. Unlike Chapter 13, under Chapter 7 the debtor does not file a repayment plant. The bankruptcy trustee may sell some assets to satisfy debts. If the debtor has assets that serve as loan collateral, the trustee might have to sell those assets to satisfy the liens or mortgages. However, the vast majority of a debtor’s unsecured assets are discharged under Chapter 7.
The Chapter 7 discharge relieves the debtor of responsibility for most debts and halts creditors from attempting to collect on those debts. Chapter 7 generally discharges unsecured debts fairly quickly. If a debtor wants to retain secured property, such as an automobile, the debtor may reaffirm the debt by entering a formal agreement to continue to make payments to the creditor for the asset. Otherwise, the creditor can repossess the vehicle or any other asset that serves as security for a loan, particularly if the debtor fails to continue to make payments. Reaffirmation must take place before discharge.
What Debts Can Chapter 7 Not Discharge?
Chapter 7 cannot discharge the following debts:
- Most back taxes: This includes income taxes, Social Security taxes, tax penalties or, for businesses, unpaid withholding tax for employees
- Child support and alimony.
- Student loans: Generally, you cannot discharge student loan debt, but if you meet certain requirements, the bankruptcy court might consider it.
- Home mortgages: State laws provide varying amounts of “homestead exemptions” that allow you to protect a certain amount of equity you might have in a home—but, in general, you cannot discharge a lien holder’s interests.
- Debts from fraud, embezzlement, larceny, or from “willful and reckless acts.” For instance, don’t try to run up credit-card debt just before filing for bankruptcy and expect to walk away from it.
- Automobile loans. If you want to keep your vehicle, you cannot discharge the loan debt you used to purchase it.
If You Are Considering Bankruptcy in Salt Lake City, Call Bankruptcy Attorney Jory L. Trease of JLT Law to Discuss Your Options
If you are in financial difficulties and are considering filing for bankruptcy, you need to understand how the bankruptcy laws can work for you. Bankruptcy can achieve some things for you, but not others. Take advantage of a free case evaluation to determine how bankruptcy can help you. Contact me at (801) 896-9444 or through my online contact form.