- Chapter 7 bankruptcy is for debtors who lack the income necessary to pay at least some of their debts. If the debtor is already barely staying afloat when the judgment comes down, Chapter 7 might be available. A Chapter 7 bankruptcy forces the debtor to sell off or surrender property for which there isn’t an exemption. The debtor uses the resulting proceeds to pay off as much of the debts as possible, leaving only a small, exempted amount for the debtor’s own use. After the debtor has paid what he or she can, the rest of the debts are discharged. At the end of the process if a creditor cannot be paid because there is nothing left, the creditor may be out of luck.
- Chapter 13 bankruptcy is the option available for people who do not satisfy the debt-to-income requirements of Chapter 7. Chapter 13 is more favorable to plaintiffs because it does not result in debts being discharged for good. Instead, the Chapter 13 debtor is required to adopt a repayment plan that is compatible with the debtor’s income. A Chapter 13 repayment plan is overseen by the bankruptcy court and a trustee, and may last up to five years.
Defendants in personal injury lawsuits can end up owing the plaintiff a significant amount of compensation, whether as part of a settlement or as a consequence of a court judgment. In simplified terms, the successful plaintiff becomes a creditor of the defendant. One concerns that successful plaintiffs may have is that defendants may seek to reduce or eliminate their debt obligation by discharging it through personal bankruptcy. There are several kinds of bankruptcy, which are named after the applicable chapter of Title 11 of the U.S. Code, also referred to as the U.S. Bankruptcy Code. For individuals, the two forms of bankruptcy are Chapter 7 and Chapter 13. The mechanisms and requirements of these two forms of bankruptcy are quite different.