Chapter 7 is ideal for those who own little property (other than their residence and vehicles) as it is the most effective way of eliminating unsecured debt. The Chapter 7 discharge eliminates credit card debt, medical debt, civil judgments, personal loans, and many other types of debt. Importantly, it will stop wage and bank account garnishments. In addition, you may claim certain of your property as exempt under California or Federal law; most debtors get to keep all of their assets. A typical Chapter 7 bankruptcy case moves quickly and is over within just three to four months.

Chapter 13 is most effective for debtors with regular income who wish to reorganize their debts and fully or partially repay them in manageable monthly payments over three to five years. It is usually the best option for debtors who have a large amount of equity in their home and wish to retain the property. Though Chapter 13 requires a plan to pay debts over a period of time, it does not require that all debts be paid in full. Many unsecured debts such as credit card, civil judgments, certain taxes and medical debt can still be discharged. Under certain circumstances, even second and third mortgages and judgments liens on real estate can be stripped off and discharged. If you purchased a vehicle at least 910 days prior to the filing of the bankruptcy petition you may be able to “cramdown” the value of the vehicle to what it is currently worth. There is no maximum income requirement under Chapter 13, and the bankruptcy case lasts for the length of the plan, from 3 to 5 years.

Chapter 11 is a reorganization of debt for businesses and consumers that have a large number of unsecured debts. Chapter 11 is a very complicated process and requires attorneys that have the experience necessary to confirm a Chapter 11 Plan. Some of these issues may include valuing property, setting the proper interest rate and properly disposing of unsecured debt.

The Automatic Stay is a powerful and effective tool to quickly stop almost any action against the debtor to collect a debt. When a bankruptcy petition is filed the stay immediately takes effect, placing the debtor and his property under the protection of the US Bankruptcy Court. In certain cases we can retrieve monies that have been garnished prior to the filing of the case. The stay can stop most actions including foreclosure, repossessions, evictions, and law suits against the debtor. It is one of the most important provisions of the bankruptcy code and is often the prime reason for filing a bankruptcy case.

The Discharge is the primary benefit for debtors in a bankruptcy and is essential to the “fresh start” that debtors get at the end of the bankruptcy process. It stops creditors from attempting to collect debts that have been discharged by the bankruptcy court. While many types of debt can be discharged through the bankruptcy process, certain debts such as child support, alimony, certain taxes (some tax debt can be eliminated), and student loans cannot be discharged.

Real Estate Assets (both personal and investment properties) play an important role in deciding whether to file a bankruptcy and which type of bankruptcy to file. Most debtors who own only their personal residence keep their home through the bankruptcy, even in Chapter 7 “liquidation”. However, debtors who own investment real estate that they wish to keep are generally advised to file a Chapter 13 “reorganization”, so they can submit a plan to pay their debts (either fully or partially) through reasonable monthly payments over a period of three to five years. In very specific circumstances, you may be able to “cramdown” the value of an investment property and pay it off in five years.

In Chapter 7 and 13 cases, you can keep all property which the law says is “exempt” from the claims of creditors. Specifically, a vast majority of debtors will be able to keep their home, cars, personal property, retirement accounts, and furniture. In determining what and how much is exempt one must take into account that the value of property which is not the amount you paid, but what it’s worth now (often referred to as “yard sale” value). Especially for furniture and cars, this may be a lot less than what you originally paid.

In most bankruptcy cases, you only have to go to the “341a meeting of creditors” to meet with the bankruptcy trustee and any creditor that chooses to come (in most cases creditors do not appear). Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Occasionally, if complications arise you may have to appear before a judge at a hearing.

Filing a bankruptcy will not ruin your credit for the rest of your life, First, for most people filing bankruptcy, their credit has already been negatively affected by late payments and debt sold to collection agencies. Under the Fair Credit Reporting Act, the bankruptcy case will appear on your credit report for ten years. Accounts included in bankruptcy schedules will be listed as “Included in Bankruptcy” for seven years.

Bankruptcy lowers your credit score and prevents you from getting credit on favorable terms. This effect diminishes as you start to rebuild your credit. Approximately two years after filing for bankruptcy, most consumers are able to seek credit on normal terms. This is because they have discharged most or all of their debt, and are now living on a budget they can afford.

Most debtors receive credit offers soon after the court enters the discharge order. This is because you will have little or no debt, leaving extra disposable income, and you will not be able to discharge new debt for seven years. However, you should be very vigilant about accepting these initial credit offers. These offers will often be on unfavorable terms, including, high interest rates, and other charges and fees.

Approximately two years after receiving the discharge order, your credit rating will begin to rise back up, and the bankruptcy itself will be less of a factor on your credit score compared to your credit history for the last two years. If you pay your bills on time (especially any mortgage payments), you can expect your credit score to steadily recover, and you will likely qualify for credit on regular terms, as opposed to paying a penalty for the bankruptcy filing.

If you decide not to file for bankruptcy, you must continue paying your creditors and if you fail to pay your creditors on time these accounts may be reported to the credit reporting agencies as delinquent. The accounts may also be assigned or sold to a collection agency which will result in a second negative mark appearing on your credit report. If the creditor decides to file a civil lawsuit (many lawyers specialize on filings these suits on behalf of creditors, it’s a low hanging fruit business), that lawsuit may become a judgment, which like the bankruptcy, may remain on your credit report for ten years.