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Formal Options

If you have a ton of credit card debt, Chapter 7 is usually the best option, of all the options for dealing with debt. A Voluntary Chapter 7 is one which you voluntarily petition the court for relief from all of your debts. It’s called a ‘Liquidation’ because all your debts are ‘liquidated’ within 90 days and all your assets are ‘liquidated’.

However, and this is very important, since the purpose of a Chapter 7 is to give you a ‘fresh start’, it makes no sense to take away all of your possessions and sell them for the benefit of creditors. Therefore, you have exemptions for your assets. You can exempt out your assets from the liquidation process. And this is very important. Many people think when they come to my office that in a Chapter 7 that they are going to lose their home, car, pensions, furniture and cash.

Chapter 7 – Formal options for dealing with your debts

I have explained to clients that they could see the Chapter 7 as loading onto a conveyor belt which is carrying items into a furnace to be ‘liquidated’ that they load their debts onto the conveyor belt. They would have to load their assets onto the conveyor belt but they have exemptions and those exemptions allow us to take their assets off of the conveyor belt. Therefore, they see just their debts being liquidated or canceled (discharged).

However, having said the above, you have to confer with an attorney in order to make certain that your assets are exempt. There are times when assets are not exempt. Only an attorney experienced in this area should help you.

The famous last words I hear from a client are: “I have a simple case” and; therefore, how much are you going to charge me? I have found that in cases which one would think that they are ‘simple’, are lurking the most complex issues imaginable in Bankruptcy.

I tell clients that it only takes ‘one nuclear bomb to ruin your day’ and lurking within the Bankruptcy Code is vast amount of landmines just waiting for you. I blame this on the banking and credit card lobby which is constantly changing the Bankruptcy Code in order to ‘screw you’ the consumer. I’m not suppose to talk this way, namely, in such a blatant disregard for euphonisms.. I have told clients that there are two classes of people in our society: the screwer and the screwee. And we’re the screwee. We have to be very, very vigilant and ready to take flight in a fraction of a second; otherwise, the hyena credit card companies will devour us.

If you use a Chapter 7 option, you should be informed on how to restore your credit score within 12-24 months post-bankruptcy. I have an E-Learning website for this purpose called, and my clients can use this website and there’s no charge to them.

Chapter 13

A Chapter 13 is a re-organization of all your debts. It takes 3-5 years and you don’t get a discharge until the end when you have completed your Chapter 13 Plan. It’s more expensive than Chapter 7 because it takes far more work and effort than a Chapter 7.

A Chapter 13 is used primarily to save a home from foreclosure. It can be used to pay-off credit cards and re-pay not dischargeable taxes usually with no interest running on the debt.

Theoretically, you could use a Chapter 13 to repay 1% of your credit card debt and be out of debt. However, I have never seen this happen. Usually, a person is paying at least 10% back of their credit card debt. But again, this depends on your income and assets. Most of the time the Chapter 13 Trustee’s Office is scrutinizing your budget and assets to see if you can re-pay 100% on your credit card debt. And experienced Bankruptcy Attorney can advise you of the odds of you paying 100% on your credit card debt in a Chapter 13. If you have to re-pay 100% of your credit card debt in a Chapter 13, then there probably isn’t an real advantage in using a Chapter 13. You’d be better off using Debt Settlement where you re-pay 50% on your debt. However, there are many contingencies that have to be weighed besides the pluses and minuses graph which I have posted on this website.

And if you elect to use Debt Settlement, you need the guidance of an attorney who is very familiar with collection law in order to protect your assets and wages from the creditors.

Chapter 13 is more powerful than a Chapter 7 because in Chapter 13, it’s possible to void second mortgages on your home if there’s insufficient equity for the second mortgage and you can reduce car payments. You can’t do this in Chapter 7.

If you are behind on your mortgage, Chapter 7 allows you to take the arrearage and spread it out over a 5 year period but you have to, also, continue to pay on your mortgage. If you owed $10,000 in arrearage on your mortgage and your mortgage payment was $800 per month, in Chapter 13, you’d continue to pay on the mortgage of $800 per month and on the arrearage you’d pay approx $166.00 per month for 5 years. (This is a very over-simplified statement because I haven’t factored in Trustee fees and attorney’s fees.) Therefore, your total mortgage payment would be $966.00 per month. If you could pay this amount, you’d successfully stop any foreclosure and the Court would order that you be allowed to repay on your mortgage arrearage. Thus, you’d save your home from foreclosure.


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