What Can Bankruptcy Do For Me?

By: Christopher Brine

Depending on what type of debt you owe, bankruptcy is intended to provide you with an orderly process to either discharge or repay your debts. Whether you owe credit cards, taxes, student loans, car loans, mortgages, or are facing a foreclosure of your home, a Chapter 7 or Chapter 13 bankruptcy may provide you with the best option to achieve your goals and get out of debt.

Generally speaking, though, there are some major differences between Chapter 7 and Chapter 13, the option that is best for you may depend on what type of debt you owe.

Chapter 7 vs. Chapter 13
The vast majority of bankruptcies that are filed are Chapter 7 cases. Generally speaking, Chapter 7 provides a complete discharge of debts with no repayment to your creditors, and no loss of assets. You must qualify for to file for Chapter 7 based on your household income.

If you do not qualify for Chapter 7, or if you owe debts that are not dischargeable, or if you have assets that are not protected in a Chapter 7, then a Chapter 13 filing might be a better option for you.

A Chapter 13 is a repayment plan over a span of three to five years. Your monthly payment amount is determined by a review of your income and expenses to determine an affordable payment. The payments can be used to catch up on your mortgage to prevent a foreclosure, to pay off nondischargeable debts like student loans and some taxes, or to provide payment to your credit cards. At the end of your payment plan, the remaining balances of your debts are discharged.

What type of debt do you have?
Depending on what type of debt you owe, and what your goals are, the appropriateness of either Chapter 7 or Chapter 13 may differ. For example, if you are hoping to catch up on your mortgage and prevent a foreclosure, a Chapter 13 may be a better option because allows you to repay these payments to your lender over several years.

Credit Cards

Credit cards are generally dischargeable in both Chapter 7 and Chapter 13. This is true even if they have sued you in court, or obtained judgment against you. If they recorded a lien against your property at the registry of deeds, then you may be able to discharge this lien as well.

Mortgages/Car Loans

This type of debt is referred to as “secured debt,” which means that if you do not pay the lender, then they have the ability to take a specific piece of property from you (e.g., your house or car). This type of debt is generally dischargeable in either Chapter 7 or Chapter 13, but Chapter 7 will not help you catch up on your payments if you are behind. If you are looking to prevent a foreclosure or repossession, then Chapter 13 is generally a better option.Also, if you owe a second mortgage or home equity line of credit, you might be able to completely discharge these additional mortgages in a Chapter 13 filing.

Taxes

Depending on what your tax debts are for, and how old they are, your taxes might be either dischargeable or not dischargeable. Similarly, if a tax lien has been recorded against you by the IRS or MDOR, then you might be able to completely discharge this lien in a Chapter 13 filing.

Student Loans

Absent exceptional circumstances, student loans are generally not dischargeable in either Chapter 7 or Chapter 13. If your primary issue is student loan debt, though, you may be able to structure a Chapter 13 repayment plan to suit your needs if your loan servicer is unwilling to work with you.

Speak with an attorney

Depending on what types of debt you owe, a Chapter 7 or Chapter 13 bankruptcy may provide an excellent option for you to achieve your financial goals. Each case is different, though, so do not rely on what you heard on TV or from a friend. If you are considering filing for bankruptcy, you should speak with an attorney immediately as it is a complex process can result in serious consequences if done incorrectly.