First, A Disclaimer.
Before we get started, I need to make something really clear. I am not nor am I claiming to be an attorney. What I know about credit law has to do with what I’ve learned from my attorneys, my CPA, and life experience over many years in several different businesses. You should absolutely and always consult with an attorney before doing anything even remotely related to business, finance, or anything else where you could get yourself in legal trouble.
The opinions I’m expressing here have to do with my personal knowledge and the knowledge of others that I’ve known or employed presently and in the past.
I’m an expert at repairing credit, an expert in most aspects of real estate, and a licensed civil engineer; however that does not mean that I’m qualified to be your attorney or your CPA. You need to hire and consult with a CPA and an attorney and counsel with them on any legal or financial matters.
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Chapter 13 & Chapter 7 Explained
Before we get started there’s always some confusion as to what a chapter 13 and a chapter 7 is. Both are named after their chapters of the bankruptcy code.
When debts are killing folks many people will file one of these two types of bankruptcy depending on their income and their needs. I don’t want to get too deeply into this because it’s a lot more complex that I can explain on one slide in a PowerPoint but generally speaking people who earn a decent to significant income or want to protect some of their properties like their house will typically file a chapter 13 and reorganize their debt in exchange for relief from their creditors. It’s typically a 3 to 5 year repayment plan. In this case some creditors get paid, some don’t, and some get paid partial amounts.
Now folks that have little income remaining at the end of each month or minimal assets or both will typically go for a chapter 7 bankruptcy which wipes out, and lawyer language they call it discharges, their qualifying debt within about six months or so. In this case they don’t ever repay any of the creditors.
I think it’s also fair to mention since were talking about it something called Chapter 11. Chapter 11 is very similar to chapter 13 in that it’s a reorganization however this part of the bankruptcy code is specific to businesses. Most businesses that start out in chapter 11 end up doing a chapter 7 and liquidating the business however about 10 to 15% are successful in reorganizing their debt.
