Joseph M. Bochicchio, PLLC

TYPES OF BANKRUPTCY AND CHAPTERS OF BANKRUPTCY

The Bankruptcy Code is divided into 2 Types, and 5 Chapters. The two types are “Straight/Liquidation” (Chapter 7 only) and “Reorganization/Repayment” (all the rest…Chapters 9, 11, 12 and 13).

The two chapters that usually apply to consumers are Chapter 7, where most or all of your debt is wiped out, and Chapter 13, which involves a repayment plan.

In most cases, once you file your case, the “Automatic Stay” immediately going into effect. The Automatic Stay is a restraining order that keep creditors away from you and your property. It means that a bankruptcy filing automatically stops, or stays, and brings to a halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection harassment. Generally, creditors cannot take any further action against you or your property without permission from the Bankruptcy Court.

Chapter 7: Chapter 7 is for people who are having financial difficulties and are not able to re-pay their debts.

Under the changes to the Bankruptcy Code that took effect October 17, 2008, you can usually qualify for a Chapter 7 if your average gross monthly income for the last six months is below your state’s Median Income, your gross income less certain expenses shows no discretionary income left, or you can show “special circumstances” that would allow you to qualify for Chapter 7. In other words, you prove you don’t have the money to repay your debts.

Under Chapter 7, your attorney will look to see if you can “exempt” (protect or keep) some or all of your assets under North Carolina law, or, if you have not lived in North Carolina for the past two years, under that state’s exemption law that applies to your case. Most retirement accounts and pensions are also exempt. Secured property, normally your car and house, may not have a lot of net equity, in which case you can keep it as well, but you will have to keep making the payments for the loans. A Court representative, called a Trustee, liquidates non-exempt (non-protected) property if you have any, and uses the proceeds to pay your creditors according to priorities of the Bankruptcy Code.

Once your Chapter 7 case is over, you receive a “Discharge”. The discharge prevents your creditors from taking any steps to try to collect their unsecured debt. They cannot call you, write you, sue you, or take any steps that could be considered an attempt to collect its debt. If you want to keep property that has a lien on it, you must keep your payments current, and may be required to reaffirm your debt. Some debts cannot be discharged. Typical examples are child support, alimony, and other domestic support obligations, some taxes, student loans, criminal restitution, and debts for death or personal injury caused by operating vehicles while intoxicated with alcohol or drugs.

Chapter 13: Chapter 13 is a valuable tool that lets you catch up overdue mortgage or car payments, taxes and domestic support obligations. It also applies where you have the ability to repay some or all of your debts over time. Under Chapter 13, you normally keep all of your property, both exempt and non-exempt, as long as you resume (or continue) making your regular payments on secured debts, and keep current under the repayment plan required by the bankruptcy laws. This plan may pay all of your debts, or just a portion; this will depend on your particular circumstances. A repayment plan can be from three to five years. After finishing your payments, most of your unsecured debts are discharged.

You must have less than $336,900 in unsecured debt (such as credit cards, signature loans and medical bills) and less than $1,010,650 in secured debt (such as mortgages and car loans) to qualify for Chapter 13. (*April 2007)

Chapter 9: Chapter 9 is for cities, and is very rare. You don’t need to know about this chapter.

Chapter 11: Chapter 11 is designed primarily for business reorganization, but is also available to consumer debtors, its provisions are quite complex. In the vast majority of cases, Chapter 11 is unnecessary and too expensive for most consumer debtors.

Chapter 12: Chapter 12 lets family farmers repay their debts over a period of time and is in many ways similar to a Chapter 13.