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Consumer Bankruptcy Basics

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Today’s L.A. Times has a great article on consumer bankruptcy, which discusses the basic distinctions between a Chapter 7 bankruptcy and a Chapter 13.  It’s a good read for anyone with substantial debts and questions about how the process works.

Generally speaking, a Chapter 7 — often called a “liquidation” bankruptcy — is for people who will never be able to pay back their debts and need an entirely fresh start.  If a person qualifies for a Chapter 7, either by making less than the median income in their state (Arizona’s median income is around $48,000 per year) or because their monthly expenses leave them with little to no disposable income, then a discharge after Chapter 7 will eliminate most debts entirely.

On the other hand, if a person is employed and making more than the median income or has disposable income (but not enough to meet their current debt obligations), a Chapter 13 filing could help them by reducing all monthly debt payments to a single affordable monthly payment.

Today’s L.A. Times article also has a nice question and answer section for both Chapter 7 and Chapter 13.

One thing the article hammers home, that I continually remind people, is that: “No matter which type of bankruptcy is filed…there’s onecommon key to a successful outcome. Just as your mother taught you:Honesty is the best policy, and not just for moral reasons.”

The consequences of leaving out information could be dire.  “If you’re caught fudging the numbers or trying to hide property, a bankruptcy can be canceled, possibly leaving you in worse financial shape than when you filed.”

Full text of the L.A. Times article is available here.

My law firm handles both Chapter 7 and Chapter 13 filings and I am always happy to answer any questions from people considering their options.

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Hamid Jabbar

Hamid Jabbar

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