Bankruptcy Attorney Sacramento serving Rocklin reviews the four most basic bankruptcy questions regarding filing Chapter 7 or Chapter 13 bankruptcy.

Occasionally, people just want to know the basics about filing a Chapter 7 or Chapter 13 bankruptcy: what are the two main types of consumer bankruptcy and how do they differ?

Why do people file for bankruptcy?

Bankruptcy is a legal proceeding designed to enable a person to eliminate personal debt and to stop all creditors contact regarding unpaid debt.

And speaking of “creditor contact” – that’s putting it mildly and nicely.  In actual fact and experience, people feel harassed by collection calls and by other means of collection which may include lawsuits, wage garnishments, a bank account freeze, and liens on property.  As soon as one files bankruptcy papers with the court, an “automatic stay” goes into effect which prohibits any creditor contact except through the agency of the bankruptcy court or trustee.

1) What is Chapter 7?

Chapter 7 is a bankruptcy procedure designed to dishcharge certain eligible debt. One of the advantages of Chapter 7 is that it immediately stops creditors from collecting on any of your debts the moment you file the bankruptcy petition with the court. The other advantage is that you are provided with a discharge of debt, meaning you no longer owe the creditor the up-to-now unpaid balance on the debt.  This frees up money to use paying down other debt, such as student loans or make required child support payments,  Overall, this type of bankruptcy enables one to gain a fresh financial start within a short time period – maybe as little as a few months.

2) How does Chapter 13 differ from Chapter 7?

A Chapter 13 bankruptcy filing is different from Chapter 7 because it does not eliminate your debt. Instead, it provides you with the opportunity to pay your debts over an extended time period, from three to five years, depending on your income and debts.  Not all creditors must be paid in full and unpaid amounts are discharged (subject to some exceptions to discharge).

In order to take advantage of this program, you’ll need to have a reliable source of income that can be used to budget a repayment plan that is practical and approved by the court.

3) Why do people choose to file Chapter 7 over Chapter 13 bankruptcy?

There are multiple reasons why people elect Chapter 7.Most people choose Chapter 7 because they have large payments that they are unable to pay down such as legal judgments or hospital bills. Some people file after long periods of unemployment when they are simply unable to pay their bills.

A Chapter 13 bankruptcy reorganizes the income/debt picture so that many assets are retained, such as a house, which would otherwise may not be retained in a Chapter 7 bankruptcy.

Determine your debt relief options and action plan after a thorough review by an experienced bankruptcy law firm.  When you have clarity about the steps to complete a Chapter 7 or Chapter 13 bankruptcy, you can pursue further strategies to attain your financial goals.  Please contact our Sacramento office at 916-313-9069 or via email at info@california-bankruptcyattorney.com.