In general, “bankruptcy” is a term for a federal court procedure designed to help consumers and businesses dispose of their debts and/or repay their creditors. If you can prove that you are entitled to it, the bankruptcy court will protect you during your bankruptcy proceeding.

Among the different types of bankruptcies, Chapter 7 and Chapter 13 are the most common for individuals and businesses. A Chapter 7 proceeding is typically known as a “liquidation bankruptcy”, which means your property could be sold in order to pay back your debts. Chapter 13 proceedings are typically referred to as “reorganizations”, which means you may be able to keep your property, but you must submit and stick to a plan that will allow you to repay some or all your debts within three to five years.

Financial difficulties can cause stress, confusion, and panic, making it even harder to understand the legal and practical consequences of determining if filing for bankruptcy is right for you. Contact Orlando Legal for an initial review of your situation to learn how we can help you get a fresh financial start.

Chapter 7

Both individuals and businesses are allowed to file for Chapter 7 bankruptcy. These proceedings typically last between three and six months. To be eligible for Chapter 7, you cannot make enough money (minus certain expenses and monthly debt payments) to be able to fund a Chapter 13 bankruptcy repayment plan. Credit card debt, unsecured loans, and other debts can be forgiven in Chapter 7 proceedings, however, child support, back taxes and alimony payments cannot.

Debts are categorized as secured debts (those that are guaranteed by collateral) and unsecured debts (such as credit cards, medical bills, personal loans, lawsuit judgments, repossession, deficiency claims, and wage garnishments). During the proceedings, some of your property may be seized and sold to pay off some or all of your debts. As a benefit of this type of proceeding, any unsecured debts will be wiped out. Things such as the furniture in your home, your car and your clothes are exempt from this seizure.

Secured debts are treated differently than unsecured debts in a Chapter 7 bankruptcy proceeding. In this case you (the debtor) have to make a choice between allowing the creditor to repossess the property that secures the debt, continuing to make payments on your debt to the creditor, or paying the creditor a sum equal to the replacement value of the property that secures the debt. In addition, some types of secured debts can be wiped out during a Chapter 7 bankruptcy proceeding.

Filing of Bankruptcy stops creditors from pursuing legal action including foreclosure. Property where you owe more than the value can assist in that the deficiency can be discharged.

In the vast majority of Chapter 7 cases, clients are able to not only eliminate debt, but also make use of state and federal exemptions available to protect assets the debtor wants to keep. This can give the debtor fresh financial start by wiping out all your unsecured debt

You can keep your home and car and you don’t have to lose everything – exemptions are available (and generous).

Chapter 13

Chapter 13 proceedings involve the rehabilitation or reorganization of the debt. Under a Chapter 13, creditors may be provided with a better opportunity to recoup what they are owed. This provides relief and allows a plan to be put in place to pay creditors over time.

In Chapter 13 bankruptcy you must work with the court to come up with the repayment plan and stick with the plan over the next three to five years. The amount you pay is based upon your income, how much debt you owe, and how much the creditors of your unsecured loans would have received if you had filed under Chapter 7 instead of Chapter 13.

Only people with a reliable source of income are allowed to file for Chapter 13 bankruptcy. In addition, you must be able to show that your debt is within the limits for filing. As of September 2009, the limit on secured debt was $1,010,650 and the limit on unsecured debt was $336,900. If you have more than either of these amounts, you may not be able to file for Chapter 13 bankruptcy protection.

Chapter 13 bankruptcy may allow you to repay secured debts, even if you are behind on payments, without having that property repossessed. You may be able to put your past due payments into your overall debt repayment plan, and pay them off over a period of years.

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