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What is Bankruptcy & What Are Bankruptcy Chapters?
What Is Bankruptcy?
Bankruptcy gives a fresh start to honest debtors. That’s what the Supreme Court said more than seventy years ago. A fresh start to honest debtors and a clear field for the future. (As an aside, we know how hard it can be to decide if bankruptcy is right for you, that’s why we encourage you to read our many client reviews.)
There are about as many bankruptcies in America each year as there are divorces–about a million. This year there will be ten thousand in Northern Virginia.
Recently the biggest cause of bankruptcy in Northern Virginia is people getting caught in the real estate crisis, and people losing their jobs in the recession. Historically, most people filed bankruptcy because of medical problems, or job loss. Many people because of a breakup of a marriage or loss of a spouse. Some people just charged too much when things looked good.
What Are The Bankruptcy “Chapters”?
You have two main choices under the bankruptcy law–Chapter 13 and Chapter 7.
Chapter 13 is a debt adjustment. The court works out a payment plan you can afford. Chapter 13 may be required for higher income people. The new bankruptcy law was promoted as an effort to force more people to file Chapter 13. Mostly it hasn’t. Bankruptcy lawyers have been pretty successful at working with or working around the requirements of the new law.
Under Chapter 7, most unsecured debts are discharged–they’re gone. (You usually cannot be discharged from taxes, student loans, or child support. You also cannot be discharged from credit cards you agreed to pay as part of your divorce.)
Our law firm thinks that Chapter 7 is better for most people. It’s over quicker and gets you back to good credit much sooner. We try everything we can to qualify people for Chapter 7 if they need Chapter 7.
Chapter 13 is good to stop the foreclosure on your house and give you time to catch up. (For more about foreclosures, visit Stop Virginia Foreclosure.) For some people whose house has lost a lot of value, we can use Chapter 13 to strip off your second mortgage. Barack Obama has also promised to change the law, so we can use Chapter 13 to reduce the payments on your first mortgage. That would help a lot of people, but it doesn’t look like we have the votes to make that change.
Chapter 13 can also be used creatively to fix a variety of unusual problems. (Some of which I can’t put in writing). If you agreed in your divorce to pay certain bills–I’m not talking about support here, but if your property settlement was a really a “debt” settlement–Chapter 13 can get rid of those.
(You hear in the news about Chapter 11. Chapter 11 is for business–usually big business. Chapter 11 is a plan to pay some debts, wipe out others, and keep the business going. People who owe a million dollars on their house may be required to file Chapter 11–we’re starting to see some of that now.)