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A Comprehensive Guide for Consumers and Businesses

Voluntary Bankruptcy

A voluntary bankruptcy is one in which you may choose to file for bankruptcy protection. A voluntary consumer bankruptcy may be filed under Chapter 7 or Chapter 13 of the Bankruptcy Code. You may be individual consumers, married consumers, small or large businesses, or family farmers.

The kind of bankruptcy will be determined by you and your attorney. Your ability to repay your creditors will be a key factor in determining which kind of bankruptcy to file. If you have no “disposable income” then you may choose to file under Chapter 7, if you can pass the means test. Other factors include, whether you operate a business or family farm.

Individuals with large credit card and medical debt usually choose Chapter 7 bankruptcy. Individuals who wish to save a home or car usually file under Chapter 13 bankruptcy. Individuals with tax debts may file under either chapter, depending upon the age of the taxes and your goals.

Chapter 7 Bankruptcy

Chapter 7 is the most common and simplest bankruptcy. It is designed to give you a “fresh start”, and wipe the slate clean of all of your dischargeable debts. Unsecured debts such as credit cards, signature loans, medical debts, unpaid bills, old income taxes, debts arising from repossession, foreclosure deficiency debts, and many other kinds of debts may be discharged. This means that you do not have to pay the debts. In order to qualify you must pass the means test.

Chapter 13 Repayment Plans

Chapter 13 is essentially a repayment plan for individuals with regular income and unsecured debt less than $336,900 and secured debt less than $1,010,650. If you are fall outside this range on the upper end, you should look at Chapter 11.

In Chapter 13, the debtor keeps his property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over time (3-5 years). Repayment in Chapter 13 may range from 10% to 100% depending on debtor’s income and his debt structure.

Chapter 13 also provides a mechanism to prevent foreclosures and repossessions while debtors are catching up on their secured debts. Many kinds of taxes can be included in a Chapter 13 plan. Chapter 13 can also be used to stop garnishment, foreclosures, repossessions, threats of lawsuits, actual lawsuits and creditor harassment.

Please note that mortgage payments are not included in the chapter 13 plan. Mortgage payments must be paid “outside the plan” or “directly” to the mortgage holder. However, home payment arrearages, that is, “back payments” may be included in the chapter 13 plan.

A debtor must attend a 341 meeting of creditors which takes place within 20-40 days of filing the bankruptcy petition.

Chapter 11 Business Reorganization

Chapter 11 is also a reorganization proceeding, typically for corporations or partnerships. Individuals, especially those whose debts exceed the limits of Chapter 13, may file Chapter 11.

The debtor proposes a plan of reorganization which, upon acceptance by a majority of the creditors, is confirmed by the court and binds both the debtor and the creditors to its terms of repayment. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.

Chapter 12 Family Farm

Chapter 12 is a simplified reorganization for family farmers, modeled after Chapter 13, where the debtor retains his property and pays creditors out of future income. To be eligible, more than 50% of the debts must be farm related and more than 50% of the income must be related to the farm.

Dana A. Ehrlich

Dana A. Ehrlich is a bankruptcy specialist who lives and works in San Angelo, Texas. He has lived in the Concho Valley and San Angelo, Tom Green County for many years. His practice is primarily consumer bankruptcy law and he is a board certified bankruptcy specialist for Chapter 7 and Chapter 13. He may be reached at 325-655-5351 or at

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