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Bankruptcy Understanding

Everyone Deserves A Fresh Start . . . Why Not You?

Considering Filing Bankruptcy . . . See What Saunders & Associates Can Do For You

Chapter 7 is to discharge most debts and give you a “Fresh Start” in a short period of time.

Chapter 11 bankruptcy involves a reorganization of a debtor’s business affairs, debts, and assets, 

Chapter 13 is also known as “reorganization.” A powerful tool that helps people reorganize their debt.

We are a Debt Relief Agency as designated under Federal Law. Saunders & Associates, APC, proudly helps working Americans from all walks of life file for Chapter 7, Chapter 11 and Chapter 13 Bankruptcy to stop foreclosures, harassment from creditors, garnishments, repossessions, liens, evictions and lawsuits under the U.S. Bankruptcy Code. Saunders & Associates, APC, is here to help you get out of debt. We will vigorously represent you in Bankruptcy Court.

There are three chapters of Bankruptcy that individuals (and married couples) can file. The most well-known chapters are Chapter 7 and Chapter 13. Chapter 11 Bankruptcy cases are mostly utilized by businesses.

Individuals whose debt exceeds the limit for a Chapter 13 may file a Chapter 11 Bankruptcy to restructure their debt. Filing Chapter 11 Bankruptcy for either a business or an individual requires that a reorganization plan be submitted to the court.

The biggest difference to a Chapter 7 bankruptcy case is the steps a filer can take to reorganize their debt based on whether it’s secured, priority, or unsecured debt.

Debt relief is immediate. The automatic stay goes into effect as soon as the Chapter 7 and Chapter 13 Bankruptcy petition is filed with the court, stopping all collection efforts, including any garnishments you have been dealing with.

The Bankruptcy forms that are filed for a Chapter 13 case are largely the same as for a Chapter 7 case.

Chapter 13 filers also have to complete both the pre-bankruptcy credit counseling and the post-filing financial management courses through an approved agency and attend a meeting of creditors. In both types of bankruptcy, the filer is granted a discharge once all legal requirements for getting a discharge have been met.

The biggest difference between Chapter 7 vs. Chapter 13 is that the filer is required to make monthly payments to their bankruptcy trustee to pay a portion of their debts through their repayment plan. In a Chapter 7 bankruptcy, the trustee’s role is limited to investigating whether there are non-exempt assets that can be sold for the benefit of unsecured creditors. If none are found, creditors don’t get paid. If non-exempt assets exist, the Chapter 7 trustee sells them and uses the proceeds to pay each unsecured creditor their share.

In a Chapter 13, the bankruptcy trustee functions as a plan administrator, who receives the filer’s monthly payments and distributes the funds according to the Chapter 13 repayment plan approved by the court.

If the filer has significant non-exempt property, the plan payment has to be high enough so that all unsecured creditors get at least as much through the Chapter 13 plan than they would have received in a Chapter 7. That’s called the best interest test. However, not having any non-exempt assets does not get a Chapter 13 filer out of the obligation to make regular monthly plan payments.

Even though the majority of the forms are the same, filing a Chapter 13 is much more difficult than filing a Chapter 7. As part of the case, the filer has to propose a plan of reorganization that meets all of the requirements set forth in the Bankruptcy Code.

Since the Chapter 13 process allows the filer to reorganize their debts and pay certain types of debt in full while discharging others, there are significant advantages to filing Chapter 13 over Chapter 7. Wage earners with a regular monthly income that’s high enough to pay their monthly living expenses and make a monthly plan payment can take advantage of the following features of a Chapter 13 bankruptcy.

A Chapter 13 plan can modify your existing car loan and as long as you meet the legal requirements (i.e., you’re not trying to pay less than what the Bankruptcy Code says you have to), the creditor will be bound by the terms of the plan. They can’t complain about not getting paid the full amount of the car loan.

If the interest rate on your car loan is high, a Chapter 13 Bankruptcy Plan can reduce the interest rate to a much lower amount. This will immediately make your car loan cheaper.

If you’ve had the car for more than 910 days, your plan can lower the balance owed to the current fair market value of the car. The waiting period prevents people from getting a car loan then turning around to modify it in a Chapter 13.

Example: Before filing, your car loan had a balance of $14,000 and an interest rate of 19.99%. You purchased the car 3 years ago, so the value is only around $6,000. In a Chapter 13 plan, you can propose to pay the creditor $6,000 at 6.5% interest and discharge the rest of the loan. When the plan is completed and your discharge entered, you’ll receive a clear title to your vehicle.

If you rolled in your old car loan when buying your current car, you may be able to lower the balance (at least the amount that was rolled over from your trade-in) even if it’s been less than 910 days since you purchased your current vehicle.

Unlike a Chapter 7, a Chapter 13 Bankruptcy gives you the opportunity to repay your mortgage (or HOA dues) over the term of the 3 to 5 year plan (and not in one lump-sum payment that the bank may be demanding). This makes Chapter 13 a very powerful tool to fight off a looming foreclosure proceeding.

If you fell behind on your mortgage, maybe because you were unemployed for a while, but now you can afford to make the monthly payment again, Chapter 13 can get you back on track so you’re completely current with your mortgage (or HOA) payments when your case is done.

Some districts have a Mortgage Modification Mediation Program that helps bridge the gap between the bank and the homeowner and streamlines the process of determining whether you’re eligible for any of the modifications offered by your lender.

If your home is worth less than the total amount owed on your first mortgage, you can remove or “strip” the second mortgage or home equity line of credit (HELOC) from your home. As long as you receive a Chapter 13 discharge, the bank will have to remove the lien from your property.

In a Chapter 7, property that is not protected by an exemption is sold in order to pay unsecured creditors. As long as you pay enough into your plan to cover the value of your non-exempt property, you’re able to keep it.

If someone cosigned a debt for you, the automatic stay in a Chapter 13 case extends to them as well. Chapter 7 does not offer that. You can potentially classify this debt separately so that you can pay it off as part of your payment plan, even though it’s a nonpriority general unsecured debt.

Certain debts can’t be discharged in Bankruptcy and some of those non-dischargeable debts are priority debts. The most common examples for this category are tax debts and child support. In a Chapter 7, you’re left owing this debt after your case is done and your discharge is entered. In a Chapter 13, you can pay these types of debt off in full through the Chapter 13 Plan. So, while you may not be able to discharge your recent tax debts, you’re still able to eliminate the burden of owing it by paying it off as part of your case.

Even though student loans are for the most part non-dischargeable in bankruptcy, they are not considered a priority debt.

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