SHOULD I FILE FOR BANKRUPTCY?
Illness, divorce, foreclosure, and job loss—almost everyone will experience one of these problems at some point during their lifetime, or even several at once. If you’ve ever found yourself in such a situation—or are in it now—then you know that debt can pile up fast, quickly placing an individual or family in a challenging financial position. Without a safety net, it would be difficult for many to get back on their feet.
Bankruptcy provides a solution by giving people saddled with substantial debt the opportunity to get out from under it while treating creditors in a fair manner. Once complete, a debtor (the person filing for bankruptcy) will often describe the relief that comes with a clean financial plate as a “fresh start.” They get to start over without the looming burden of unpaid bills. For the most part, bankruptcy falls into one of two types—liquidation or reorganization.
Chapter 7 Bankruptcy is a straight liquidation where the Debtor is waving a white flag saying she simply cannot repay any of her debts and is willing to surrender all non-exempt assets to a trustee to be sold. I reserve chapter 7 to be used in a limited number of cases where there is perhaps a significant amount of unsecured debts and almost no assets to protect. A chapter 7 Trustee stands in the Debtor's shoes is paid a 10% commission on every asset they liquidate plus they get to charge legal fees to the estate and it adds up quickly. In a chapter 7 the Debtor and her attorney have very little control. You must qualify as an individual earning leads than the median income for your state. By contrast, keeping control by filing a chapter 13 with a 3 or 5-year plan allows the debtor to pay the creditors the value of her non-exempt assets over an extended period and still retain her assets without having a Chapter 7 trustee take control. Once you file for Chapter 7, there is no getting out without a court order allowing you to exit.
Chapter 13 Bankruptcy is what is known as the "Hokey-Pokey" bankruptcy meaning it is the only chapter an individual can voluntarily choose to be in and voluntarily choose to take themselves out. The Chapter 13 Trustee's role is limited as compared to a Chapter 7 Trustee. The Debtor presents her plan for reorganization which can be objected to but overall does allow the Debtor more control over their finances than in a chapter 7 particularly if the individual is running a small business