The Most Common Forms of Bankruptcy

Chapter 7 Bankruptcy
In Chapter 7 the debtor is allowed to retain all assets that are considered exempt
assets. Filing under Chapter 7 may require court liquidation of non-exempt personal
property. This means that the trustee may sell unprotected personal property to
repay the creditors who loaned money to the debtor. *Non-exempt assets may
include collateral such as a house, car, or land. *There are limitations from state to
state that determine what personal property may be exempted but Chapter 7
provides adequate protection for most assets. Chapter 7 completely eliminates a
debtor's legal liability and responsibility for repaying unsecured debt. However, a
debtor who is behind on secured debt, such as a home or car, will remain
obligated to repay the debt, including the past due amount. For chapter 7 bank-
ruptcies, the time frame from filing to receipt of discharge can usually take
anywhere from 3 to 5 months.

The following debts cannot be discharged through Chapter 7:

• Credit card, personal loans, and installment purchases made within 40
  days of filing.
  
  
• Debts resulting from fraud.
  
  
• Debts resulting from DUI or reckless driving.
  
  
• Fines from traffic tickets or debts that result from criminal negligence.
  
  
• Debts from willful or malicious injury to another person or their property.
  
  
• Alimony.
  
  
• Child Support.
  
  
• Student Loans(*)

  * In 1998 the law changed with regard to discharge of student loans. Prior
  bank-ruptcy law allowed student loans to be discharged once they were 7 years
  or older from the day they were first due. Currently, student loans cannot be
  discharged unless the debtor passes an undue hardship test. The debtor has to
  prove that theymade good faith efforts to repay the loan and prove that they
  cannot maintain aminimal standard of living if forced to repay the loan(s). The
  guidelines of a "minimalstandard of living" are very rigid and discharge of student
  loans under Chapter 7 is uncommon.

Income Taxes (*)

• * Generally speaking, for taxes to be discharged, the following criteria must
  be met:
  • A tax return for the year in question was filed at least two years before
    the bankruptcy.
    
    
  • The tax is over three years old.
    
    
  • The tax was assessed more than eight months before the bankruptcy
    was filed.
    
    
  • The debtor did not willfully evade the tax.

Chapter 13 Bankruptcy
Chapter 13 differs from Chapter 7 because it involves a repayment plan that is
submitted to the trustee and the bankruptcy court for approval. The debtor is
required to create a feasible monthly budget that will enable them to meet their
basic needs and still be able to afford to make scheduled payments to the bank-
ruptcy trustee. This formal plan is prepared and submitted with the bankruptcy
petition to determine how much money will be repaid to the creditors through a
deed trust payment each month. 

Chapter 13 permits a debtor to repay in monthly installments for three to five years.
It also allows the debtor to keep all of their assets, even if their value exceeds the
amount of the exemptions allowed by the state. To qualify for chapter 13, you must
have a consistent and stable income, your unsecured debts must be less than
$250,000, and your secured debts must total less than $750,000.

Chapter 13 also allows a debtor who was in arrears on federal income tax to
establish a payment program through which they can pay the IRS back over time.
Under chapter 13 the automatic stay will protect any cosigners on the consumer's
debts. Also, Chapter 13 bankruptcy is not discharged until all deed trust payments
have been made which usually takes three to five years.