VERY IMPORTANT BK QUESTION....

Hello -

First, let me say that since the Bankruptcy laws changed in 2005, BK is far from the "easy way out" anymore. It's an expensive, life-altering process, regardless of which chapter you end up filing.

You also don't have the free choice of which chapter you file anymore. Oh, you can still file either 7 or 13 if you WANT to, but you have to be willing to allow the Trustee to sell certain of your assets if you file Chapter 7 when you should be filing 13.

Here's the lowdown:

Chapter 7:
-eliminates your debts (except certain legal and tax obligations)
-you must go through a "means test", which will determine where your income falls within your state's income limits for BK. If you make over a certain amount, the law assumes you can repay at least a part of your debt, and you should file Chapter 13, which is the "wage earner debt repayment plan". You may still file Chapter 7, but you must be willing to allow the Trustee to liquidate any non-exempt assets to repay your debts before discharging the rest. This may include houses and cars, depending on what state you live in. Every state is different when it comes to the exempt assets. Your attorney can fill you in.
-Chapter 7 is quicker and cheaper than Chapter 13

Chapter 13:
-Called the "wager earner debt repayment plan" because if you have a job, and earn over a certain limit (according to your state), you should be able to repay at least part of your debts before they are discharged.
-Payment plan lasts 3-5 years, and most often, the payments to the Trustee for your plan are taken right out of your paycheck.
-The law and the means test determine what your "disposable income" is - not you.
-Attorney fees for Chapter 13 filings are very high - it's a long, involved process, with lots of paperwork to fill out.
-If you want to keep your house & car, prevent foreclosure on your house or lawsuits from creditors, Chapter 13 will do that. Must be filed before the sale date on any foreclosed house to be effective.

Now...let me say this. Neither chapter of BK will have a 'nice' effect on your credit. Your credit rating will be affected for up to 10 years after filing BK. You will find it difficult to get a home or car loan with any bank, especially now that most banks have tightened their lending criteria with the recent credit/mortgage crisis.

A large percentage of Chapter 13 plans fail. Why? Because even though you are repaying your debts through a Chapter 13 repayment plan, you don't stop incurring new debts during that 3-5 year period. A lot can happen in 3-5 years. Car repairs. Home repairs. Dental/doctor bills. Vet bills. College tuition. Everyday expenses. Gas price increases. Any or all of these things can leave you unable to make ends meet after the Trustee payment is taken out of your paycheck. If you choose to file Chapter 13, be sure you can live with the payment the attorney sets up for you.

I hope this helps.

WOW Sue, that is great info. I wish I would have had that detailed info for my friend last year when he filed. You are so right about 13. He is now having a very hard time paying because his wife has fallen very ill and had to have a major surgery and now they don't have her income plus they now have $15,000 in medical debt and that is after what their insurance paid. So he now feels he is screwed.

Depending what state you live in, what your allowed exemptions are, and what the value of your house is, you may be able to keep your home, even in Chapter 7. We live in California and recently filed Chapter 7. Our house is worth less than we owe on it, so we didn't even have to use any of our exemptions in order to keep it. Our attorney advised us not to reaffirm the debt, even though we plan on keeping the house, because if something does happen later and we lose the house, then the lender can't get a deficiency judgment against us.

I think cars are treated differently though under the new BK laws. We don't have any car loans, so I'm not sure, but I'm thinking that I read somewhere that you do HAVE to reaffirm them. Not sure though . . .

We filed bankruptcy in July of 2007, we were discharged with our chapter 7 Dec of 2007. Alot happened inbetween Christmas and May of 2008 and we needed another vehicle. Our credit scores sucked before bankruptcy, even declined further while in debt settlement for as wasted two years. UPON filing bankruptcy, our scores increased dramically..we were super shocked. To reestablish our credit, we have a 1000.00 limit credit card that was issued to us with low interest in Feb/2008 and a new 2005 vehicle with 11.99% interest we financed in May of this year. LIFE GOES ON AFTER BANKRUPTCY. Our scores are near 726 and 750, which is way better than they have ever been in a long time.

Plus, the fact that we reaffirmed our truck payment and house payment helped our credit scores. I received our credit report a couple of weeks ago and the only trouble I am having with our credit is that Bank of America does not seem to get into a very big of a hurry to clear our credit reporting status with Credit reporting agencies, so I have had to keep on them to get this done. I will tell you that the Auto dealership was TOYOTA and they did not care one bit that we filed for bankruptcy and told us they would get us a lender with good interest guaranteed, they kept their promise.

GOOD LUCK

a friend of mine is getting a divorce,he is threating to file a chapter 7,is there any way she can keep the house?the house is in both there names,behind on payments and taxes.

Lindalou, thanks for those comments. Specific information on real experience is great. Thanks for posting it.