QUESTION: What is the difference between bankruptcy under Chapter 7 and under Chapter 13?
Answer: Chapter 7 Bankruptcy is often called "straight bankruptcy". It completely discharges all unsecured debts such as credit card debts. However, to qualify for a straight bankruptcy, a debtor has to earn below the state median income (e.g., $79,791 for a household of four in California).
Chapter 13 is also called "wage earner" reorganization for individuals and small business operator. Under a court-approved repayment plan, the debtor will pay his disposable income to the Chapter 13 Trustee. The Trustee will then apportion the payment to the creditors according to the payment plan. The payment plan can range from 36 to 60 months. However, debtors who have more than $336,900 in unsecured or more than $1,010,650 in secured debt cannot file under Chapter 13.
Question: What is the benefit of filing for personal bankruptcy versus consolidating my debt?
Answer: Consolidating your debt will allow you to recover from a poor credit rating faster. However, you still need to pay the debt management group monthly, which can be burdensome. Hence, if you have a cash flow problem and do not intend to buy a house or a car in the near future, filing for bankruptcy can help you get rid of all your unsecured debt. Filing a voluntary petition for bankruptcy will help you start fresh. If you do not have a lot of unsecured debts, and want a good credit rating, then debt consolidation may be your option.
Question: Can I file bankruptcy by myself without ruining my wife’s credit rating? If I file for bankruptcy what will happen to the credit card debts we have together?
Answer: You can file for a personal bankruptcy, without including your wife. However, the bankruptcy court looks at household income to determine whether you fit into a Chapter 7 (total discharge of unsecured debts) or Chapter 13 (repayment plan). Under bankruptcy laws, you need to report your total household income. Nevertheless, you can file a personal bankruptcy under your name and just submit your own paystubs. The bankruptcy filing will not appear in her credit report.
Filing bankruptcy under Chapter 7 will discharge all your unsecured debts. All your personal credit cards (under your name alone) will be discharged. However, your wife will be left with the debt for all the joint credit cards, where you are both primary cardholders.
Question: I am employed with a regular paycheck of $3,000 per month. I have no savings or checking account. I do not own any house or real property. We have two old cars that are fully paid up. I have not been paying our credit cards recently because of my wife got laid off. What is the worst thing that could happen to us?
Answer: Your creditors, upon judgment with the court, can garnish a portion of your wages. They can also attach your cars. Please note that these properties are considered exempt from bankruptcy. If you file for bankruptcy, then no creditor will be able to neither garnish your wages nor attach a levy upon your car, without the court’s approval. Further, the harassing phone calls from creditors will stop. If you file a voluntary petition for bankruptcy under Chapter 7, your unsecured debts will be discharged and you do not have to pay a cent toward these unsecured debt.
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This article does not constitute any legal guarantee or advice for any individual matter and does not create attorney client relationship with the readership.
( Published September 11, 2010 in Asian Journal Los Angeles p. C6 )
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