Chapter 7 bankruptcy is commonly referred to as a “liquidation” bankruptcy, however very few cases involve liquidation of a debtor’s property. Chapter 7 bankruptcy cases are a good option for eligible debtors who have debts they wish to discharge and who are current on their payments to creditors holding a security interest in property the debtor wishes to keep. This type of case usually lasts three to four months, from the date of filing until the bankruptcy case is closed. The bankruptcy case starts when the bankruptcy petition is filed. The debtor meets with a trustee once, usually thirty to forty-five days after the petition is filed. After this meeting, the debtor must wait sixty days to allow her creditors to review the case and determine whether to object to discharge. This rarely happens, as there are few grounds for objecting to discharge and the potential for recovery by the creditor in these types of lawsuits is low. After the sixty days has passed, the trustee requests a discharge order, the judge signs the order, and the case is closed.
Chapter 13 bankruptcy is commonly referred to as a “reorganization” bankruptcy. There are two main reasons why debtors file chapter 13 bankruptcy. First, debtors file under chapter 13 because they have debts they wish to discharge but they are ineligible for a discharge under chapter 7 because their income is too high or they are ineligible because of a prior bankruptcy discharge. Second, debtors file chapter 13 bankruptcy because they are in danger of losing secured property to foreclosure or repossession. Chapter 13 bankruptcy gives debtors a way to protect their property from repossession or foreclosure and repay their arrears. Chapter 13 cases last between three and five years from the date of filing until the case is closed. In chapter 13 cases, debtors propose a plan to repay their creditors. These plans must be either three or five years long, depending on the debtor’s income. The plan may be shorter if the debtor proposes to repay all of her debts. The Bankruptcy Code requires that certain debts be paid in the chapter 13 plan. Debtors are required to pay all of their priority debts (income taxes, attorney’s fees, and child support), any secured debt included in the plan (such as a car loan or mortgage arrears) and depending upon their income, they may be required to pay a portion of their unsecured debt as well.