CHAPTER 7 BANKRUPTCY - Chapter 7 Bankruptcy is commonly known as a
liquidating bankruptcy. The concept of Chapter 7 Bankruptcy is that
all of a Debtor's non-exempt property becomes property of the bankruptcy
estate and is liquidated by the bankruptcy trustee.
The sale proceeds are then distributed among the Debtor's creditors.
However, in the majority of consumer Chapter 7 bankruptcy cases, most
assets owned by the Debtor are exempt from execution under applicable
State and Federal laws.
Therefore, in most cases, a Debtor can file Chapter 7 and retain possession
and ownership of his or her property. In Chapter 7, the Debtor receives
a discharge which eliminates credit card debt, medical bills, and other
similar debt, plus debts secured by vehicles, real or personal property
or other assets surrendered to the Debtor's secured creditors.
A Debtor may have the option of retaining possession of assets (such
as a vehicle) securing a Creditor's claim, provided the Debtor agrees
to continue paying the debt secued by the asset the Debtor desires to
CHAPTER 13 BANKRUPTCY - Under Chapter 13, the Debtor retains all of
his or her assets, and the Debtor formulates a plan under which the
Debtor proposes to re-pay Creditors all or a portion of the debt owed
to them over a period of three to five years.
The Debtor must make a single monthly plan payment to the bankruptcy
trustee throughout the duration of the plan, and the bankruptcy trustee
distributes the plan payment among all of the Debtor's Creditors in
amounts and priorities specified in the plan. (Certain obligations including
long-term secured liabilities may be paid outside of the plan.) The
amount of the plan payment is an amount equal to all of the surplus
income of the Debtor and the Debtor's spouse.
Surplus income is all income received by the Debtor and his or her
spouse that is not reasonably necessary for the support of the Debtor
and the Debtor's dependents.
Many interesting and valuable options are available to Debtors in Chapter
13 cases that are not optional in Chapter 7 cases.
For example, arrears owed to a secured creditor can be cured within
the Chapter 13 Plan. This is particularly valuable to Debtors behind
on their home mortgages.
In addition, secured claims need only be fully paid to the extent of
the value of the property securing the claim. Home mortgages have special
rules in this regard under recent amendments.
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HEREIN NOR THE PERUSAL OF IT DOES NOT ESTABLISH NOR CONSTITUTE AN ATTORNEY-CLIENT
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