Chapter 7 is the most common type of bankruptcy and is often referred to as a straight bankruptcy. Under Chapter 7, you can eliminate most of your unsecured debts and some secured debts by surrendering your assets. Unsecured debts are debts not secured with collateral, including most personal loans and credit cards. When you file a petition for Chapter 7 bankruptcy, typically all collection actions against you should come to a stop. This means creditors should no longer be able to garnish your wages, call and demand payment or initiate a lawsuit against you. Report collection actions to your attorney, so they can communicate with your creditors.
Chapter 13 is the second most common type of bankruptcy and used primarily by individuals. The goal of Chapter 13 is to eliminate your debt by creating a repayment plan to pay back all or a portion of what you owe over three or five years. You make monthly payments to a court trustee, and the trustee distributes the money to your creditors. At the end of your plan, the remaining unpaid debts are discharged. Filing Chapter 13 creates an automatic stay that stops most collection actions, which generally means creditors can’t seek wage garnishments, make calls demanding payment, or file lawsuits. Automatic stays also protect your co-debtors and can save your home from foreclosure. However, you must continue to pay your mortgage or the lender can get the court to start foreclosure proceedings. Work with your attorney, so they can communicate with your creditors and work with you to determine what debts you should continue to pay if any. Chapter 13 bankruptcy works especially well if you can afford to pay some, but not all, of your debt. If you’re faced with unsecured debts, including credit cards and medical bills, Chapter 13 helps you achieve a more manageable and affordable payment. It also protects your property while giving you time to pay off your debts and attorney fees via a monthly payment plan.