There are two basic types of consumer bankruptcies, Chapter 7 and Chapter 13. Chapter 7 bankruptcy cancels, or "discharges" many types of debts. Most credit card, medical, and other unsecured debts are discharged, as are most court judgments and loans. Many filers find all of their debts discharged. Debts that can not be discharged include student loans, court imposed fines and restitution, child support, alimony and recent back taxes. TWO KINDS OF BANKRUPTCY: "LIQUIDATION" & "REORGANIZATION" Chapter 7 of the U.S. Bankruptcy Code is a "liquidation". Debtors who have property not covered by exemptions may find that property sold, or "liquidated" to pay down debt. But in the end, most or all debt is wiped away, or discharged. Usually, Chapter 7 bankruptcy takes about four to six months. And, many filers find that their property is exempt and they make it through the process unscathed. Chapter 13 is a reorganization. Basically, you gain protection against creditors immediately upon filing, then you pay off a portion of your unsecured debt over 3 to 5 years. Chapter 13 bankruptcy is for individuals only. Chapter 11 bankruptcy is for businesses and for individuals with very large debts. And, Chapter 12 provides reorganization for farmers and fishermen. CHAPTER 7 BASICS Credit Counseling Classes, required before filing, are accessed on line, by toll free phone number, or in person. Use only one of the agencies approved by the U.S. Trustee's office, listed in the Bankruptcy Court websites in each state. Classes cost about $50. You get a certificate which must be filed with your bankruptcy papers. Means Test Determining whether you are eligible for the simpler Chapter 7 is done by computing your average income during the six calendar months before the date you will file the bankruptcy petition. Your monthly average is compared to the U.S. Census Bureau's 'median income' for your state. If your income is above the median, then you need to go through what bankruptcy law calls a "means test." There's a form for all of this, the B22A. The outcome of this test will determine whether you qualify for Chapter 7. Petition In addition to the means test and a bankruptcy petition, you must also complete schedules that provide information about your property, debts, income and expenses. If you are making payments on a car or other personal property, you have three choices: o Agree to continue payments as before after your bankruptcy is final, so you can keep the property. This is called reaffirmation. o Give the property back to the creditor and the discharge wipes out the debt. This is called a surrender. o Pay the value of the property to the creditor in a lump sum and keep the property. This is called a redemption. Exemptions In return for having your debts discharged, a bankruptcy trustee may sell any of your property that isn't covered by exemptions. If you have any such property not covered, in theory, a trustee can sell the property and use the money to pay off at least some of your debt. Creditors Meeting After filing the papers, a date is scheduled for what's called the meeting of creditors. Sometimes called a "341 meeting", this event is based in Section 341 of the U.S. Bankruptcy Code. The meeting is held outside of court, in a separate hearing room. A trustee assigned to your case runs the meeting. No judge is present. In most Chapter 7 cases, this is the only personal appearance the debtor has to make.
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