Lose your job? Been through a divorce? Find that at the end of the month you just don't have enough money to pay all of your bills? You aren't alone. Once you fall behind, it often becomes more and more difficult to get caught up. Interest rates go up, late fees pile up. Suddenly you find that even your car payment is getting missed on a regular basis. You miss your mortgage payment, or two. Suddenly you find yourself worried that you may wake up to find your car missing in the driveway, skid marks down to the street. Or you begin to receive certified letters in the mail. You don't sign for them, worried about what they may be. Worried that it could be a notice that your home is going to be sold.
The above scenario happens on a daily basis. Luckily, there exists a safety net that helps people either wipe out their debts and start with a clean slate or help reorganize their debts so that they can catch up and still keep their homes and cars, even if they are behind on payments.
There are four different types of bankruptcies, but only two that affect the majority of those filing, Chapter 7 and Chapter 13.
Chapter 7 (Liquidation)
If a debtor qualifies for a Chapter 7 bankruptcy, the debtor discloses to the Court and Trustee all of his or her property. In a typical case, most of that property is exempt, either by Federal or Texas law, meaning that no one can take it from the debtor. If a debtor has non-exempt property, the Trustee can sell it and use the funds to pay off some of the debtor's unsecured debt. The remaining unsecured debts are discharged. If a Debtor has secured debt, the debtor can either be current and reaffirm the debt, redeem the property that secures the debt, or surrender the property and have the underlying debt discharged.
Chapter 13 (Reorganization)
There are two reasons why a debtor may file a Chapter 13 bankruptcy; they have more income than the median family in the state, or they are attempting to save a home or vehicle that may soon be foreclosed or repossessed. In a Chapter 13, the debts, including arrears are grouped together and paid off over time. If the debtor's income doesn't require them to pay off all of their debts, whatever is left unpaid at the end of the plan will also be discharged.