There Are Two Types of Consumer Bankruptcy Programs, Chapter 7 and Chapter 13

Interviewer: Let's go over some basics on bankruptcy first of all.

Vance Truman: There are several types of bankruptcy. People don't realize that. There's Chapter 7, Chapter 13, Chapter 11, Chapter 9, Chapter 12. The only two that I focus on are Chapter 7 and Chapter 13. These are the consumer bankruptcies.

Chapter 7 Is the Most Common Consumer Bankruptcy

Chapter 7 is the most common. I'd say about 60% of the bankruptcies that I file are Chapter 7. Chapter 13 makes up the remaining 40%. Chapter 7 is about a five-month process from start to finish. A Chapter 13 can range anywhere from three to five years, depending on debt, income, and other issues. It is decided on a case-by-case basis.

Bankruptcy Was Created for Individuals Wishing to Discharge Credit Card Debt so They Can Meet Their Other Financial Obligations

As far as the bankruptcy basics, if a person is overwhelmed with debt and they're having trouble meeting their monthly obligations, or they can't pay their credit card debt, and their home payment, or their car payment, sometimes it might be best to get rid of the credit card debt. It'll help them be able to afford to keep a roof over their head and a car to get back and forth to work.

Most of the individuals that file Chapter 13s are trying to save their homes from foreclosure. There are other instances where they have to file a Chapter 13 because there has not been the required eight years since they had filed a previous bankruptcy. If they filed a previous bankruptcy and then it has not been over eight years, they would be required to file a Chapter 13 bankruptcy instead of another Chapter 7.

A Chapter 13 Bankruptcy Is for Individuals with Higher Incomes

People with higher income are required to go into a Chapter 13. That was one of the main issues dealing with the law change. Congress felt that individuals that had excess income, above what they consider median, should pay something back to their creditors.

Now that has worked pretty well. Their intentions are working out. The people that do make more money do pay back something to their unsecured creditors.