Bankruptcy

CHOOSING A BANKRUPTCY OPTION

There are two options under the bankruptcy laws: a liquidation or a repayment plan.

In a liquidation, also called a Chapter 7 bankruptcy, you sell your property and use whatever cash is generated to fully satisfy creditor claims. You will be allowed to keep certain kinds of property under the exemptions allowed by federal and state bankruptcy laws. The definition of “exempt property” differs in each state, and it can include clothing, furniture, household appliances, tools of your trade and perhaps your home or car.

In a repayment plan, sometimes called a Chapter 13 bankruptcy, you pay a portion of your monthly income to a trustee for distribution to your creditors. A repayment plan is useful when you are behind on your home or car loan. The repayment plan can be used to extend, for up to five years, the time period for paying your bills and might allow you to pay less than you owe. The extended payment period has the advantage of allowing you to make smaller payments. You will be allowed to keep part of your monthly income to pay for living expenses, such as food,
clothing, rent and medicine.

To qualify for a Chapter 13 repayment plan, you must have regular income and your debts, both secured and unsecured, must not exceed specific amounts. If your debts do exceed the limits for a Chapter 13 plan, you may be able to qualify for a repayment plan under Chapter 11. Bankruptcy proceedings under Chapter 11 are more complicated than those available under Chapter 13. Your lawyer can advise you on current limits and on the best option for you. After you begin bankruptcy liquidation, you may not start another Chapter 7 bankruptcy for six years. There is no waiting period after a Chapter 13 bankruptcy.

Your lawyer can study your situation and advise whether to seek a liquidation or repayment plan. The best bankruptcy alternative for you depends on a number of things, including the source of your income, the amount and types of your bills, your desire to protect any cosigners or guarantors, and the importance to you of maintaining your record of paying your debts.