CONSUMER BANKRUPTCY OVERVIEW
THERE ARE BASICALLY TWO TYPES OF CONSUMER BANKRUPTCY (Chapter 11 bankruptcy is beyond the scope of this website):
LIQUIDATION – CHAPTER 7 BANKRUPTCY
Chapter 7 gives you a chance to eliminate your debts and start over.
It is known as the “fresh start” bankruptcy because, when your case is over, you are debt-free.
In many cases, you can even keep your home and car while eliminating your other debts.
Chapter 7 is not, however, available to everyone. There are specific income and asset requirements that must be satisfied.
California has a complex bankruptcy exemption framework that gives you many options to preserve a portion of your property, including your home, car, jewelery, cash, boat, tools, wages, etc. The amount of property you are allowed to keep will depend on the specifics of your case.
People with high debt and few assets generally benefit most from Chapter 7. Those with substantial equity in their home, a high income, or otherwise do not qualify for liquidation, generally must file under Chapter 13.
REORGANIZATION – CHAPTER 13 BANKRUPTCY
Chapter 13 is quite different from Chapter 7. In Chapter 13, you use your income to pay your creditors a portion of what you owe them over a period of 3 to 5 years.
The Repayment Plan
Chapter 13 requires that you create what is called a Repayment Plan. The name is misleading, however, because some of your creditors may get little or nothing under the plan. In general, the Repayment Plan will require that you pay all of your debts to secured creditors (home, car, student loan, taxes, child support, etc.) and only what you can afford to unsecured creditors (credit cards, medical bills, judgments, etc.).
At the completion of the case, all of your qualified debts will be wiped-out!
A Chapter 13 case is much more complex than a Chapter 7 case, and will generally be more expensive. Many lawyers, however, will allow their fees to be financed through the Repayment Plan, so you should be able to avoid extensive immediate expenses.
Homes & Cars: For information about whether you might be able to keep your home after filing a Chapter 13 bankruptcy, visit our Bankruptcy & Your Home page.
Note Regarding Foreclosures: If your are facing foreclosure, Chapter 13 bankruptcy may present an opportunity to save your property, as Chapter 13 allows the debt to be re-structured over a stretch of time. Further, secondary mortgages that are not secured by equity in the property might be removable. For more information, visit the Foreclosure & Bankruptcy page.