There are two different types of bankruptcy cases that are usually used by people who need help ending their bill problems – Chapter 7 bankruptcy and Chapter 13. Chapter 7 bankruptcy is designed for individuals (and married couples) who can’t pay their bills. The typical Chapter 7 client is someone whose income minus their regular average monthly expenses (not including debt payment) yields no money left over. This type of case would be appropriate where average income over the past six months (called “current monthly income”) minus expense allowances yields an amount that falls within certain guidelines.
Under Chapter 7, a trustee takes control of all property that is not specifically exempt; you get to keep many types of property because the law lets you keep it. In return, the court allows you to wipe out many types of debts. Generally, you will be able to wipe out the following types of debts:
- credit cards
- store cards
- medical and dental bills
- unsecured personal loans
- certain taxes
There are other types of debts that may be able to be discharged (wiped out). It’s useful to realize that the vast majority of people who file Chapter 7 bankruptcy get to keep all of their personal belongings – in some states, people who file Chapter 7 may also be able to keep a home and a car. You should always talk with an experienced bankruptcy lawyer when making a decision to file any type of case.
As far as what you get to keep, the laws differ from state to state. In New York (which is where I practice), you would be able to keep most of your possessions.
For people who may not qualify or would lose significant assets, Chapter 13 might be an alternate means of ending your bill problems. The qualifications for Chapter 13 are different, and the benefits to this type of case may well outweigh the burdens.
Jay S. Fleischman is a bankruptcy lawyer with offices in New York and Los Angeles. In addition to helping his clients get out of debt, he sues bill collectors and credit reporting agencies for violations of non-bankruptcy consumer protection laws.
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Last modified: October 15, 2012