Bankruptcy Law | Chapter 7 & 13
If the bills are piling up and you don’t have the means to pay them, filing for bankruptcy might be a solution for you. What you may not know is that there are several types of bankruptcy, the two most common for private individuals looking to manage their debt being Chapter 7 and Chapter 13. Immediately upon filing, both Chapter 7 and 13 put what’s called an “automatic stay” on your debt, meaning creditors can no longer contact you about repayment. Both types also protect you from creditors during the bankruptcy process.
Below are some key differences between Chapter 7 and Chapter 13 bankruptcy. To find out what path is best for your personal situation, contact the offices of Ohiku Law for expert advice and guidance.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is what is known as a liquidation of debt. This means that certain types of debt can be erased and you are no longer responsible for repayment.
Under Chapter 7, only unsecured debt can be liquidated. Unsecured debt is that which is not secured by a piece of collateral. Credit card debt and medical bills are examples of unsecured debt. Debt owed on a car or a house cannot be liquidated through Chapter 7 without losing the asset itself – these are known as “secured” debts. Under the rules of Chapter 7, you need to continue to make the payments on a secured debt to keep the asset – your car or your home.
You must pass a means test in order to qualify for Chapter 7 bankruptcy. Those who the court deems financially able to pay back their debts – albeit with the help of a payment plan – will not be approved for Chapter 7. Chapter 7 is a good option for individuals with low or no income who will likely never be able to dig themselves out of a bad financial situation.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also known as a reorganization of debt, meaning you are still responsible for paying off part or all of your secured debt, but the court works with creditors to create a multi-year repayment plan that is manageable for your financial situation.
For example, if you are behind on your mortgage payments, filing for Chapter 13 bankruptcy can allow you to avoid losing your home to foreclosure while providing you with a repayment schedule appropriate for what you are able to pay.
Unsecured debt, such as credit cards or medical bills, also factors into the Chapter 13 repayment plan. You may be required to pay back a percentage of the total debt and, once the Chapter 13 bankruptcy is closed, the rest of the unsecured debt is wiped out.
Chapter 13 bankruptcy is most appropriate for individuals with an income source who have found themselves behind on payments without the ability to get themselves back on track.
No matter which type of personal bankruptcy is right for you, Ohiku Law can help you navigate this complex, and often stressful, situation. The ultimate goal is to support you through the bankruptcy process with expert advice and a caring hand to help you towards a more financially secure future.
Bankruptcy FAQs
What is bankruptcy?
Bankruptcy is a legal process in which a person who is unable to pay their debts files a petition with the court. The court then works with the filer, their attorney, and the creditors to find a solution to the outstanding debt. There are several types of bankruptcy, the most common for individual filers being Chapter 7 (liquidation) and Chapter 13 (reorganization)
I can’t pay my bills. Should I file for bankruptcy?
If you find yourself with more debt than you can manage, bankruptcy may be the right solution to get you back on your feet. However, filing for bankruptcy is not a decision to be made lightly; seek the advice of an experienced Milwaukee bankruptcy attorney before you file.
How do I decide whether to file for Chapter 7 or Chapter 13 bankruptcy?
An experienced bankruptcy lawyer can help you decide whether to file for Chapter 7 or Chapter 13 bankruptcy. A lot of this decision has to do with your income and whether you have the means to pay back some or all of your debt with the support of the court.
If I file for bankruptcy, will all my debt be wiped out?
No. While debt is treated differently in Chapter 7 and Chapter 13 bankruptcy, not all types of debt are eligible for liquidation or reorganization. Examples include child support, student loans, some income taxes, and criminal fines.
If I file for bankruptcy, will creditors stop calling me?
Yes. As soon as you file for bankruptcy, an automatic stay goes into effect, meaning creditors are no longer able to contact you about your debt.
If I file for bankruptcy, will I lose my house or car?
Under Chapter 7 bankruptcy, you are still responsible for paying debt on secured assets (such as loans on a car or house) unless you want to give up the asset. Under Chapter 13, secured debt can be repaid as part of a payment plan manageable for your financial situation.
Will filing for bankruptcy ruin my credit score?
Filing for bankruptcy will have a serious impact on your credit score, but you can rebuild it by making on-time payments over the course of several years. Filing for a home or car loan will be more difficult and bankruptcy will stay on your credit report for 10 years. For many people, the impact of bankruptcy on their credit score is less than the potential impact of not filing for bankruptcy and continuing to not pay their bills.
Can I file for bankruptcy without a lawyer?
While you can file for bankruptcy without a lawyer, this is highly risky and not at all advisable. Bankruptcy is a serious, complex process with a lot at stake – if things don’t go your way, you could lose major assets like your house or vehicle. It is absolutely recommended that you seek the counsel of an experienced Milwaukee bankruptcy lawyer like Odalo Ohiku of Ohiku Law.