How Does the Process Work?
The right to file bankruptcy is provided for by Federal law. Many people mistakenly believe that a bankrupt person cannot own anything after filing bankruptcy. But in fact, people who file bankruptcy rarely lose their possessions. The Bankruptcy Code allows you to choose a form of bankruptcy so you can keep property with significant equity.
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There are two types of consumer bankruptcy:
Chapter 7 (Straight Bankruptcy)
With Chapter 7, most debts are discharged (eliminated). It takes about four (4) months from filing to the time of discharge.
What are the benefits of Chapter 7?
Chapter 7 allows you to keep all exempt (legally protected) property. This allows you to receive a discharge within a matter of months.
Chapter 13 (Reorganization)
In a Chapter 13 case you file a ‘‘plan’’ to pay creditors some portion of your past-due or current debts over a three to five years. This Bankruptcy option may be available to you even if you have received a discharge in a Chapter 7 Bankruptcy petition filed within the last eight years. The Chapter 13 case will allow you to keep valuable property — especially your home and car if you can afford the applicable payments pursuant to the plan. In most cases, these payments will be your regular monthly payments on your mortgage, with some extra payment to get caught up on the amount you have fallen behind.
Payments on most other secured debts may be lowered by reducing the balance owed, the interest rate, or by extending the repayment term to 60 months.
You should consider filing a Chapter 13 plan if you:
(1) Own your home and are in danger of losing it because of you have fallen behind on her payments;
(2) Are behind on debt payments, but can catch up if given some time;
(3) Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
You will need to have enough income in Chapter 13 to pay for your necessities and to keep up with the required payments as they come due.
What will happen to my home and car if I file bankruptcy?
You may not lose your home or car in a Chapter 13 Bankruptcy. Even if your property is not fully exempt, you may be able to keep it, if you pay its non-exempt value to creditors in Chapter 13.
However, some of your creditors may have a ‘‘security interest’’ in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt.