When most people think of a bankruptcy filing, they think of Chapter 7. Rarely, does an individual that is considering filing bankruptcy know the ins and outs of Chapter 13 bankruptcy. A Chapter 7 bankruptcy is also known as liquidation bankruptcy because the bankruptcy trustee has the ability to sell property that is not protected by bankruptcy exemptions. This doesn’t mean that everyone filing chapter 7 loses all their property. The bankruptcy exemptions are generous and vary from state to state.
All chapters of personal bankruptcy share the power of the automatic stay. The automatic stay is put in place when the bankruptcy petition is filed. The Automatic stay stops all collection activity against the debtor filing. This stay is so powerful it will even stop all illegal activity against the debtor also including, foreclosure, lawsuits, judgments and wage garnishments. This in itself many times is the reason why someone chooses filing bankruptcy over other solutions of debt elimination. While filing Chapter 7 bankruptcy will stop foreclosure, it might only be temporarily. If the individual doesn’t have the ability to get caught up on back payments or negotiate something with a creditor, the creditor can file a motion with the bankruptcy court for a relief of stay. This will allow the creditor to proceed with the foreclosure after this motion is passed.
This is why Chapter 13 bankruptcy is king when it comes to protecting property. Many people wonder . Filing Chapter 13 bankruptcy shares the power of the automatic stay, but where it’s different from Chapter 7 is the individual filing and their bankruptcy attorney are required to come up with a repayment plan that will last 3 to 5 years and is submitted to the bankruptcy court. The debts to be repaid in a Chapter 13 are paid by priority with the secured debts at the top of the pile and the unsecured debts, like credit cards, are at the bottom and are only paid with what’s left over. This means that Chapter 13 bankruptcy will stop foreclosure and allow the debtor to get caught up on the arrears over a period of time during the repayment schedule. Any unsecured debts that are left unpaid at the end of the Chapter 13 plan will be included in the bankruptcy discharge.
On a side note, because of declining values in the real estate market, it has become common to see a bankruptcy attorney file a motion with the bankruptcy court to strip liens on property that have seconds or thirds. Since the value of the property has dropped lower than the first, there is no security left on the note and the bankruptcy attorney will ask the court to make the debt unsecured and available to be included in the bankruptcy discharge.
There is just about something for everyone when it comes to using personal bankruptcy for debt elimination. The bankruptcy code has become very complicated and should not be navigated without the help of a bankruptcy attorney. For someone that’s in financial distress it’s worth an hour of their time to look into a consultation.