How do the different chapters of Bankruptcy Work?

How do the different chapters of Bankruptcy Work?

Being indebted is a challenge that most people or companies will face in a lifetime. When a debt problem becomes overwhelming, filing for bankruptcy might be a viable option. An experienced bankruptcy attorney at Zellar & Zellar, Attorneys at Law, Inc., will assist in determining which bankruptcy option is appropriate for your specific situation.  There are several bankruptcy options, such as Chapter 7 (Liquidation), Chapter 11 (Business Reorganization), Chapter 12 (Farmers) and Chapter 13 (Repayment Plan).

Chapter 7 bankruptcy: A Chapter 7 bankruptcy is often more geared towards individuals and married couples.  A Chapter 7 bankruptcy attorney at Zellar & Zellar, Attorneys at Law, Inc., deals with what is considered a “liquidation” form of Bankruptcy.  Chapter 7 will relieve you of many of your debts upon issuance of the discharge. Upon the filing of the Chapter 7 case, an “Automatic Stay” is invoked, which prevents creditors from contacting you concerning the collection of the outstanding debt. Chapter 7 will not clear all debts, as some debts are considered “non-dischargeable” such as certain taxes, student loans, child/spousal support obligations, which will still need to be paid after the bankruptcy case is completed.

Chapter 11: Chapter 11 bankruptcy is traditionally filed for businesses and corporations struggling with debts, and not individuals. When your company faces huge financial debts, Chapter 11 helps debtors as they find a fresh start. Chapter 11 does not make your commercial enterprise “go under.” However, you will get more time to restructure debts.

Chapter 12:  Chapter 12 is available to farmers and family farmers who generate most of not alll of their income from operating a farm.  It is a reorganization over time that allows the farmer who is Debtor to remain in possession of their farm and their assets and pay their debts back in a restructured manner over time.  The farmer can continue uninterrupted farming operations and can reduce secured debt and eliminate unsecured debts over time while keeping the farm operational.  It is like a chapter 13 on steroids for Farmers and it is a wonderful remedy to the family farmer in financial distress. It may offer the hope of saving the farm instead of losing it to the creditors.

Chapter 13: When Chapter 13 bankruptcy lawyers file for bankruptcy on your behalf, you will have a new financial beginning, but you will still pay some of the remaining debts.  Often times, this is an individual’s only other option for bankruptcy if they cannot qualify for a Chapter 7 Liquidation bankruptcy case.  If a debtor’s gross income is more than median IRS income for their family size, there is likely some amount of disposable income that can be used to pay at least a portion of their unsecured debts.  Another reason certain debtors choose Chapter 13 bankruptcy is to save their home from foreclosure, as a Chapter 13 can allow repayment of missed mortgage payments over five years as opposed to coming up with a lump sum reinstatement amount.  It is advisable to discuss this option with an experienced attorney at Zellar & Zellar, Attorneys at Law, Inc., if you find yourself on the brink of a foreclosure action.

When do Debtors file for Chapter 7 Bankruptcy?

As a liquidation bankruptcy strategy, Chapter 7 can wipe out all unsecured debts including medical bills and credit cards.  Chapter 7 can also discharge a mortgage debt if the debtor decides not to retain their home.  You are eligible for Chapter 7 bankruptcy if you have no disposable income or have few assets. Chapter 7 requires the appointment of a trustee to administer the debtors case, which means if you have too much “stuff” or too much equity in the items that you own, the Trustee could liquidate that property and use the proceeds to pay your debts.  To qualify for a Chapter 7 bankruptcy, you must be at or below median income for your family size, based on IRS income standards.

For Whom is Chapter 13 Bankruptcy Suitable?

People who earn regular income can use Chapter 13 to reorganize debts. Chapter 13 has many benefits because debtors can repay unfulfilled mortgage payments over time, and not all at once. Chapter 13 allows you to retain your property, unlike in Chapter 7, where property may be lost in liquidation. In Chapter 13, you will pay all or part of the debts in an agreed repayment plan based on your income, type of debt, and expenses. Chapter 13 is appropriate for debtors who desire to catch up on child support, alimony, car purchase installments, or real estate mortgage arrearages. Your unsecured debts must not surpass $394,7255 and $1,184,200 worth of secured debts if you intend to use Chapter 13. A Chapter 13 case can last between three and five years, depending on your gross annual income.

If you are unsure which bankruptcy chapter works best for you and your family, contact the experienced attorneys at Zellar & Zellar, Attorneys at Law, Inc., for a free consultation.  We have four conveniently located office in Zanesville, Newark, Lancaster and Columbus.  Call and schedule your appointment today.

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