There are two major options that consumer debtors in Arkansas and other jurisdictions can select between when contemplating a bankruptcy filing. They are Chapter 7, the liquidation or ‘straight bankruptcy’ section, and Chapter 13, the reorganization section. Chapter 7 involves discharging unsecured debt and going forward with a fresh start and a clean slate. That means that all credit card debt, medical bills and unsecured personal loans can be wiped out in a Chapter 7 pursuant to the provisions of the federal bankruptcy laws.
Chapter 13, on the other hand, is a payment plan that involves getting one’s secured loans current so that the collateral, usually the individual or married couple’s home, can be kept when the bankruptcy ends. The debtors pay each month toward the back arrears that have built up on the mortgage or other secured debt. They also pay their regular monthly payment that would be normally due.
When the three to five years are up, the loan will be current and no back amounts will be due. The debtors will then pay just their usual monthly amount until the debt is paid in full. This procedure allows the debtors to keep their home, cars or other collateral that was put up to secure a loan. The Chapter 13 therefore works to save the consumers’ home even though they have been in default in their payments.
To succeed in a Chapter 13, the individual or the married couple must have good, steady income that is sufficient to pay all of their household bills along with the arrearages in the bankruptcy plan. For those with only credit card debt and other unsecured debt such as medical bills, Chapter 7 is the strongest way to wipe out that debt. However, the consumers must be qualified to file and must not have too much property that is owned free and clear, or they will forfeit property over to their creditors. For Arkansas residents, these issues must be discussed with a consumer bankruptcy attorney prior to making a decision on whether to file.
Source: news-gazette.com, “John Roska: How Chapter 7, 13 bankruptcies differ“, John Roska, April 17, 2016