PERSONAL BANKRUPTCY

There are two types of personal bankruptcies called Chapter 7 and Chapter 13. The U.S. Trustee (the federally appointees who referees the bankruptcy system) describes these two bankruptcy chapters in this way:

"Filing for bankruptcy under Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the Chapter 7 bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to pay off your debts over a three to five year period, without surrendering any property. After you have made all the payments under the plan, your debts are discharged."

Filing the wrong type of bankruptcy can be financially costly and occasionally devastating. It is very important to meet with a local Fayetteville attorney who is an expert in filing bankruptcies. Some of the differences between the two systems are explained below.

Bankruptcy Terms to Know

As you dive into the provided information, there are some important bankruptcy-related terms you should know:

• Debtor - someone who owes a debt

• Creditor - someone who is owed money

• Trustee - someone who is appointed by the federal government to act as a referee over the bankruptcy system

Chapter 13 Bankruptcy

Someone who files a Chapter 13 bankruptcy will pay some or all of the debts by working out a restructured payment plan with their creditors. Usually the debtor makes monthly payments to the trustee that are more manageable than their debts would be otherwise. The debtor makes monthly payments to the bankruptcy trustee for 3 to 5 years, and this money is then given to the creditors. During this time, it is illegal for creditors or debt collectors to contact or make phone calls to the debtor. It also stops any lawsuits or wage garnishments that they placed against the debtor. This protection begins immediately when an individual files for bankruptcy. Chapter 13 may also allow a debtor to keep a vehicle or house that otherwise would have been repossessed (even in a Chapter 7 bankruptcy).

The Chapter 13 Process

After speaking with a Fayetteville bankruptcy attorney, the attorney will prepare and file a document with the court that begins the bankruptcy process. It will be important that the debtor give their attorney the following information:

1. Debtor's assets and liabilities

2. Debtor's income and expenditures

3. Schedule of current contracts or leases

4. Statement of financial affairs

At this time, the debtor will pay a filing fee to the court, although this is often done through the attorney at the same time that the bankruptcy is filed.

The debtor and his attorney will prepare and submit a repayment plan that proposes either monthly or bi-monthly plans that will be made to the trustee. If this plan is approved by the trustee, payments will begin within one month of filing

Within 20-50 days of filing there will be a meeting of creditors at which the debtor is placed under oath and the creditors are permitted to ask questions about the debtor's finances. The meeting generally lasts no more than 15 minutes and creditors typically do not attend.

If the debtor fails to make payments as were agreed to under the payment plan, the bankruptcy may be dismissed by the court. If this happens, the debtor would no longer be under bankruptcy protection, and they would have to file another bankruptcy (and pay the associated court fees).

Chapter 7 Bankruptcy

Whereas a Chapter 13 bankruptcy involved preparing a repayment plan, filing for Chapter 7 bankruptcy liquidates an individual's assets and may discharge their debts. The role of a Chapter 7 bankruptcy is to sell the debtor's property, maximizing repayment of debts to creditors.

The process of filing a Chapter 7 bankruptcy begins by meeting with a bankruptcy attorney and supplying the following to their attorney:

1. Debtor's assets and liabilities

2. Debtor's income and expenditures

3. Schedule of current contracts or leases

4. Statement of financial affairs

After meeting with an attorney, the debtor will pay a filing fee of around $300 to the court. This is often done through one's attorney at the same time that the bankruptcy is filed. Within 40 days of filing the court will hold a meeting of creditors. At this meeting the debtor will be put under oath and both the trustee and creditors may ask questions regarding the debtor's finances. Often creditors do not attend these meetings.