In considering the benefits and drawbacks of filing for bankruptcy, the decision as to which type of bankruptcy to file is extremely important. Below is a basic primer on the two main forms of consumer bankruptcy:
Bankruptcy under Chapter 7 is what attorneys and others frequently call “liquidation” bankruptcy. The primary benefit of a Chapter 7 is to discharge debts that are unsecured (with exceptions, that typically includes credit card debt, medical bills, and personal loans). When you file, a bankruptcy trustee will sell your non-exempt assets and pay the proceeds to your creditors. Whatever debt that is not repaid from those proceeds is discharged (wiped out) though the bankruptcy.
Most assets, however, are going to be exempt—exemptions are North Carolina statutory protections that prevent your creditors from taking your assets to pay debt. In fact, many debtors do not have to turn over their house or car in a Chapter 7 bankruptcy.
The main function of a Chapter 13 bankruptcy is to reorganize your debt to make it manageable. After you file, you will make payments against your debt over a 3-5 year period. At the conclusion of that period, unsecured debt that you still owe is discharged through the bankruptcy.
Importantly, your payments in a Chapter 13 bankruptcy are not based on the amount of unsecured debt that you owe—these payments are based on your disposable income (after taking out payments for mortgages/cars and living expenses). Although this form of bankruptcy can have a longer term, it can be a more favorable approach for debtors with high household income or non-exempt assets.
Coltrane Grubbs & Orenstein offers a free consultation for clients who are interested in learning more about bankruptcy. The consultation is an opportunity for our clients to educate themselves on their financial options, even if bankruptcy is not their preferred route. We hope that you will schedule an appointment with us soon to talk about your financial situation and whether bankruptcy is the right option for you.
Coltrane Grubbs & Orenstein is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.