Bankruptcy Basics

There are two (2) types of bankruptcy that would be applicable to the majority of debtors. It is important to understand the difference between these chapters of bankruptcy and what may be accomplished under each chapter. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called a straight bankruptcy or “Fresh Start” bankruptcy. There is a maximum level of income at which an individual would not be eligible to file a Chapter 7 bankruptcy, based on income, family size and certain allowable expenses. This eligibility determination is case-specific and cannot be determined without providing certain financial information to the attorney. 

The debtor (bankruptcy filer) after a hearing and review by the Chapter 7 Bankruptcy Trustee, will receive a discharge of all debts which are deemed dischargeable under the Bankruptcy Code. Dischargeability may be dependent on many factors specific to each case, including but not limited to, whether the debt is secured, such as a mortgage or car payment, or unsecured, such as credit cards and medical debt, when it was incurred and the overall actions of the debtor prior to the filing of a Bankruptcy Petition.

The duration of a Chapter 7 Bankruptcy is approximately four months in which time the debtor is in the Bankruptcy Proceeding and is protected by the automatic stay. At the end of the process, the debtor will receive a discharge of those debts to which he or she is entitled. 

There are exemptions that may be taken from the Federal Exemptions or Massachusetts State Exemption Law in order to protect some if not all of the debtor’s assets. 

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is also known as a reorganization bankruptcy or wage earner Bankruptcy. Bankruptcies are often filed under this Chapter by individuals who need to pay off some portion of their debts over a period of three to five years or who do not qualify to file a chapter 7.  

A Chapter 13 Bankruptcy may also be appropriate for individuals who have non-exempt property that they want to retain following the bankruptcy. 

One common reason for filing a chapter 13 bankruptcy would be if a debtor has a Home in Foreclosure and wants to stop the foreclosure, he or she could file a Chapter 13 Bankruptcy, which would stop the foreclosure, providing time for the debtor to pay off the outstanding mortgage arrears through a chapter 13 Plan.