Types of Bankruptcy

First off:  The Automatic Stay

The automatic stay occurs when your bankruptcy petition is filed.  The court notifies each creditor that you have filed and those creditors are then prohibited from engaging in collection efforts.  The calls stop.  Court cases that were not resolved are stopped.  Everything not resolved is put on hold.

Chapter 7 or "Straight Bankruptcy"

You are able to keep some of your property.  This is called exempt property.  Your nonexempt assets are converted to cash and distributed to your creditors.  In the end, you should receive a discharge that will absolve you from any responsibility to pay most or all of your debts.

In order to qualify for a Chapter 7 bankruptcy, you must either earn less than the median income for Ohio for your size of family or pass a "means test".  The calculations required to determine qualification are complicated and require you be very careful.  You have to be able to prove each claim.

Some of your property is exempt.  That means the trustee cannot touch it.  For example, there are exemptions for a certain amount for your home, vehicle and personal belongings.  The rest of your property can be taken by the trustee and sold.  The profits are then distributed among your creditors.

The process normally takes about four months.  You have to take the first of two classes.  A petition is filed.  The court sends out notices to all your creditors.  You have to send copies of your federal tax returns.  A courthouse meeting, normally the only meeting, is held at the federal courthouse in downtown Cleveland.  You have to take a financial management course.  Your debts are discharged.

Chapter 13 or "Reorganization"

In a Chapter 13 reorganization, you come up with a repayment plan to pay all or a part of your debts over a three to five year period.  The plan has to pass two tests.  The "best interest test" means that your plan gives your unsecured creditors at least as much as they would get under a Chapter 7 plan.  The "best efforts test" means that you get to keep only enough of your pay to provide you with reasonable living expenses.  The rest goes to your creditors.

If you earn more than the median income for Ohio, you can't use your actual expenses.  Instead, you use a list of standard expenses.  Your plan must go for five years.  If you earn less than the median income, your plan is based on your actual expenses and can run three years.

After you plan has run, you're done.  Your creditors have gotten all they are going to get.  Your life goes on.

The best way to determine which form of bankruptcy is right for you is to meet with me.  The initial consultation is free.

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(440) 777-1177