Which Chapter of Bankruptcy in Modesto Is Right For You? 7 or 13?

November 15, 2011

A recent article out of St. Louis looks at the two personal bankruptcy options available to all Americans -- Chapter 7 bankruptcy and Chapter 13 bankruptcy..

Modesto bankruptcy lawyers will take a look at which form of bankruptcy could be appropriate for the average consumer struggling with debt. Whether choosing Chapter 7 bankruptcy or Chapter 13 bankruptcy in Modesto, the consumer can obtain debt relief.
Both forms allow for either all or a majority of a person's unsecured debt to be discharged after going through the bankruptcy process. So, both are beneficial. But there are requirements for qualifying that are based on a person's income and their individual situation. That's why consulting with an experienced Modesto bankruptcy lawyer should be your first step if you're considering bankruptcy.

Chapter 7 bankruptcy is the form that most people think of when they think of bankruptcy. This is where a person's debts are discharged and they may be called on to give up some of their possessions to sell and pay off debt. But that's not always the case. There are many situations where a person has few pricey assets or they owe more on them than they're worth and creditors aren't interested in them.

That means a person can keep their assets and still have their credit card, medical and other debt wiped clean. This is a form of bankruptcy considered for non-wage earners or people who have more debt than their income can reasonably satisfy. They are unable to pay their debts either because of job loss or are overwhelmed with debt.

According to statistics from the American Bankruptcy Institute, Chapter 7 bankruptcies consistently make up about 70 percent of personal bankruptcies nationwide.

In the first two quarters of 2011, they made up 71.3 and 72.32 percent of bankruptcies, respectively. In 2010, they peaked at 73.45 percent during the second quarter and going back a few years they made up as low as 57.45 percent in 2006. The number of bankruptcies has more than doubled from 597,965 in 2006 to 1,536,799 in 2010. Numbers for 2011 should be relatively close to 2010 numbers.

But studies have shown that Chapter 13 bankruptcies have become increasingly popular. In 2005, lawmakers changed the standards for filing for Chapter 7 bankruptcy, making it more difficult. Since then, some people have been forced to file Chapter 13 because they make too much money for Chapter 7.

This may be because people who make money, but whose houses are dragging them down, are looking at bankruptcy as a viable option. If people bought a house at the peak of housing prices only to see them crumble and currently are living in a house that is worth 1/4 of what they paid for it, they may allow it to go into foreclosure.

That could be a strategic decision or it could be because of job loss or job transfer. In these cases, it may be possible for the bank to come after the homeowner and seek a deficiency judgment, which means the bank attempts to get the homeowner to pay the difference between the mortgage amount and the sale price at auction after foreclosure.

For these people, perhaps Chapter 13 bankruptcy in Modesto fits best. Under Chapter 13, all debts aren't simply discharged like in Chapter 7. In this form of bankruptcy, the debtor must set up a payment plan, typically over a 3- to 5-year period. During this time, they make monthly payments to pay back some of the debt. The exact portion is determined on a case-by-case basis.

After the payments are made, the debt is considered discharged. While this may be more expensive, it guarantees that a person's assets remain intact. This includes a house, vehicles and other assets.

If you or someone you know needs to speak to an experienced and knowledgeable bankruptcy lawyer in Modesto or Stockton, contact the Law Offices of Robert J. Anaya for a free and confidential appointment. Call today 1-209-522-7500.

More Blog Entries:

Deficiency Judgments On the Rise in Modesto, So Protect Yourself With Bankruptcy: October 30, 2011

Modesto Bankruptcy Watch: Retirement and Bad Real Estate Debt: October 25, 2011

Additional Resources:

Personal bankruptcy offers a couple of options, by Andrew Leckey, Stltoday.com