Chapter 7, the Most Common Type of Bankruptcy

Chapter 7 is the most common type of bankruptcy, and there are many reasons why.  Referred to as a “fresh start” bankruptcy, Chapter 7 may discharge (eliminate) unsecured debts, including credit cards, medical bills and installment loans. It stops, prevents or resolves collections, loan deficiencies, repossessions, wage garnishment and civil judgments. It can help you eliminate the bills you cannot afford while allowing you to keep assets such as your car and your house.

Overview of Chapter 7 Bankruptcy
Chapter 7 bankruptcy can be filed by either individuals or businesses.  In a Chapter 7 bankruptcy, a portion of your property may be sold to pay down your debt. This can discharge most or all consumer and/or business debts so they no longer have to be paid.

Chapter 7 may be the best option if your income is too low to pay credit card bills, medical bills, payday loans or personal loans.  The process is over in a few months, so you can begin rebuilding credit quickly. While you might have to sell property to help pay off creditors, there are Ohio bankruptcy exemptions that list types of property that cannot be sold.  Exemptions can include your home, clothing, cars, pensions, alimony and child support, equipment used for work (like tools) and household furnishings. If you do not own a great deal of property, your possessions may all be exempt, qualifying you for a “no asset” case, and you may be able to keep your home, car and other items from being liquidated.
However, there are some drawbacks with filing for Chapter 7, including:

  • Some debts, including most taxes and student loans, child support, and alimony payments, are not usually discharged in Chapter 7.
  • A Chapter 7 bankruptcy will lower your credit score temporarily and can remain on your credit report for up to 10 years.
  • Secured debts, those backed up by property such as home mortgages or automobile loans valued more than the exemption amount, may be recovered by the lender. However you can keep the property if you pay what you owe or negotiate with them to rewrite or extend your loan so that the payments are more affordable.

Not everyone is eligible for Chapter 7 bankruptcy protection. Your income and debt will be subjected to something called a “means test” to determine whether you qualify. If you are not eligible for Chapter 7, filing for Chapter 13 may still be an option.

The Difference Between Chapter 7, Chapter 13, and Other Bankruptcies
Although Chapter 7 is the most common type of bankruptcy, it is not for everyone. Depending on your situation, Chapter 13 or another chapter may actually be advantageous.

Chapter 13 is a reorganization plan that allows you to consolidate your payments to repay some or all of your debt affordably over a three- to five-year period. It is best for people who have a steady income, temporary financial problems where they can’t meet their debts, and a desire to repay some of the debt in order to keep some assets.  A Chapter 13 plan allows you to cure missed payments on vehicles and real estate if you have fallen behind Harassing phone calls and letters from your creditors will stop during the repayment time, and if you successfully complete the court-approved payment plan, the unsecured debts covered by the plan are discharged. If you have secured debts like a car loan or non-dischargeable debts like tax debts or child support, you can pay them off over the term of the Chapter 13 plan.

Chapter 11 is primarily for commercial businesses that wish to continue operations while repaying creditors through a court-approved reorganization plan.

Chapter 12 is available only to “family farmers” with regular annual income and who meet requirements relating to income, assets and debts. Similar to Chapter 13, Chapter 12 provides a period of debt repayment over three to five years. 

Chapter 9 is available only to municipalities, such as cities, towns, villages, counties, taxing districts, municipal utilities, and school districts. Under Chapter 9 Bankruptcy, the municipality reorganizes and proposes a plan of repayment, similar to Chapter 11.

If you are considering any form of bankruptcy, be aware that the laws are complicated, and filling incorrectly can cause your bankruptcy case to be dismissed without discharge.  It pays to consult an experienced Ohio debt-relief attorney for help and guidance.


From the Author: Chapter 7 Bankruptcy