Bankruptcy Made Simple
Bankruptcy gives you options for taking charge of your financial life.
What is Bankruptcy?
Bankruptcy is a legal option for dealing with your debts.
It enables you to face your financial life in an honest and realistic way. It allows you to put past problems and mistakes behind you, focus your energies on the present, and set goals for the future.
Bankruptcy is a personal choice that may be right for you or may not. But if you are financially struggling, it’s wise to find out about it.
For most consumers there are two main, quite different bankruptcy options—Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts of an individual.”
There’s also the far less common Chapter 11 “reorganization” and Chapter 12 “adjustment of debts of a family farmer or fisherman.”
For a sense of how much each of these Chapters is used, out of close to 845,000 total bankruptcies filed in the United States in 2015, about 535,000 were Chapter 7 cases, about 302,000 were Chapter 13’s, only about 7,250 were Chapter 11s and about 400 were Chapter 12s.
So about 99% of bankruptcies that were filed—consumer AND business—were Chapter 7s or 13s.
The Bankruptcy Chapters
These options are named after the chapters of the federal bankruptcy statute in which they are found, Title 11 of the United States Code.
Chapter 7 is by far the most common. The procedure usually takes less than 4 months, usually resulting in the discharge (legal write-off) of all or most debts that you want to discharge. Also, you can usually get to keep all your assets that you want to keep.
Chapter 13 is a 3-to-5-year payment plan, almost always paying only a portion of your debts, often only a small portion. With certain debts it can provide big advantages that are unavailable under Chapter 7. Can be especially good for dealing with your secured debts—home mortgages and vehicle loans particularly—and special debts that can’t be discharged such recent income taxes and child support arrearage.
Chapter 11 is usually used to continue operating a business. But it is also sometimes used by consumers, particularly if they have extraordinarily high amounts of debt (beyond the maximums allowed under Chapter 13). Is a much more complicated procedure than Chapter 13, and much, much more expensive.
Chapter 12 is for ranchers, farmers, and fishermen. It blends aspects of Chapter 11 and 13.
Choosing between Chapter 7 and 13
Practically speaking, for consumers the choice is usually between Chapter 7 and 13.
In very general terms, Chapter 7 tends to be the better way to go if your situation is relatively straightforward, especially as to your debts.
If your situation is more complicated, again especially if you have certain kinds of debts, Chapter 13 tends to be better. By certain kinds of debts we mean, for example:
- home mortgage(s) or vehicle loans that you’re behind on
- a second or third mortgage
- judgment and tax liens on your home
- a vehicle loan with a balance larger than the vehicle’s value
- unpaid income taxes
- child or spousal support arrears
- non-support debt owed to ex-spouse
- student loans
Often whether Chapter 7 or Chapter 13 is best for you will be quite clear. But before seeing a lawyer you should keep an open mind because candidly you are most likely not aware of all the available advantages and disadvantages. An experienced bankruptcy lawyer will help you understand and decide among your choices.
Bankruptcy Gives You Options
So bankruptcy is all about options and choices. There’s the choice between Chapter 7 or 13, or sometimes some other Chapter or other creative game plan. Then within each Chapter there are usually choices about how to deal with various debts. With all these choices bankruptcy can empower you to take charge of your financial life.