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What are chapter 13 and chapter 7 bankruptcies?

Many people in the Cincinnati area have received materials in the mail from bill collectors. Letters and calls may often lead to a civil court lawsuit over a debt. A judgment on a debt can be the basis for wage garnishment or bank account seizures. This blog has discussed those issues, and other collection activities, such as foreclosure and repossessions.

Many people may not recognize that filing for bankruptcy can stop the repeated calls, and letters in the mail from bill collectors. When a bankruptcy petition is filed, the law places an automatic stay on all collection efforts-from the calls to foreclosures and repos, to wage garnishment. Any effort to resume such activities can be accomplished only with the permission of the bankruptcy court. The automatic stay is involved whether a person files for chapter 13 bankruptcy relief, or under chapter 7.

Generally, a chapter 13 bankruptcy is for individuals with an income. The bankrucpty code imposes a means test upon whether an individual must proceed under chapter 13. The test is essentially a formula for determining whether a debtor is above or below the state's median household income.

In a chapter 13 bankruptcy, a debtor can generally retain all of their property, while getting caught up on past due debt over a period of three to five years. A chapter 13 payment plan is based upon the assets of the bankruptcy petitioner, the individual's expenses and income. Any dischargeable debts that remain at the end of the plan can be discharged in a chapter 13 case.

Under chapter 7, most unsecured debts are discharged. The bankruptcy code has exemptions for certain types of debt that cannot be discharged, such as most taxes, student loans, child support and other narrow types of debt.

Most people know that a bankruptcy case will be recorded on the debtor's credit history (generally for ten years). But many people find that re-establishing credit in the wake of a bankruptcy is possible. Bankruptcy is intended to provide people with a fresh start. Learning the pros and cons of bankruptcy is important. But it may also be beneficial for a person to learn how the bankruptcy laws apply in a specific case in relieving unbearable debt.

Source: Stockton Record, "Consider bankruptcy options if necessary," Elliot Raphaelson, July 22, 2012

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