Chapter 7: Liquidation of Debts

Chapter 7 is designed for debtors with financial difficulties that do not have the ability to pay their existing debts.

Under chapter 7, depending on the size of your estate, you are entitled to exempt a certain amount of your property. In fact, many debtors are able to keep everything that they own. However, when there is a large estate, a trustee will take possession of your property.

Still, you will be able to use your exemptions in order to have items you need for a fresh start. The trustee then liquidates the remainder of the property and uses the proceeds to pay your creditors according to the priorities of the Bankruptcy Code.

The purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. If, however, your are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court, and the purpose for which you filed the bankruptcy petition will be defeated.

Even if you receive a discharge, some debts are not discharged under the Law. Therefore, you may still be responsible for such debts such as certain taxes, student loans, alimony and support payments, criminal restitution, and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs.

Under certain circumstances, you may keep property that you have purchased subject to valid security interests. Your attorney can explain the options that are available to you.

Chapter 13: Full or Partial Repayment of Debts

Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time.

You are only eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.

Under chapter 13 you must file a plan with the court to repay your creditors all or part of the money that you owe them, using your future earnings.

Usually, the period allowed by the court to repay your debts is three years, but no more than five years. Your plan must be approved by the court before it can take effect.

Under chapter 13, unlike chapter 7, you may keep all your property, both exempt and nonexempt, as long as you continue to make payments under the plan.

After completion of payments under your plan, all of your debts are discharged except for alimony and support payments, student loans, certain debts including criminal fines and restitution and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs, and long term secured obligations.