In a Chapter 7 bankruptcy you wipe out your debts and get a “Fresh Start”. Chapter 7 bankruptcy is a liquidation where the trustee collects all of your assets and sells any assets which are not exempt. You may keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary “Reaffirmation Agreement”. You can also selectively reaffirm your debts – you can state that you wish to keep the house and the furniture, but that you want the car and the jewelry to go back to the respective Creditors. Reaffirmation agreements can be set aside during the earlier of 60 days after the agreement is filed with the Court, or upon the Court’s issuance of an Order of Discharge.
Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans,
Under a chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtor’s future income. You can use Chapter 13 to prevent a house foreclosure; make up missed car or mortgage payments; pay back taxes; stop interest from accruing on your tax debt keep valuable non-exempt property. If you can stick to the terms of your repayment agreement, all your remaining dischargeable debt will be released at the end of the plan (typically three to five years). The amount to be repaid is determined by several factors including the debtor’s disposable income. In addition, the total amount paid to creditors under the Chapter 13 plan must also be at least as much as creditors would have received if the debtor filed Chapter 7 bankruptcy.
To file Chapter 13 bankruptcy you must have a “regular source of income” and have some disposable income to apply towards your Chapter 13 payment plan. Chapter 13 bankruptcy is generally used by debtors who want to keep secured assets, such as a home or car, when they have more equity in the secured assets. Chapter 13 bankruptcy is a reorganization whereas Chapter 7 bankruptcy is a liquidation.
Lien strip just means you’re getting rid of or ‘stripping off’ a second lien on the house. If the lien is unsecured, meaning that the first mortgage is more than the house’s worth, then basically the second mortgage is just like a credit card, not secured by anything. In the chapter 13, we can basically wipe that off the house. So, if you complete the chapter 13 plan and get a discharge, you’ll no longer be responsible to second mortgage and they can’t come after your house and force you to pay in any way.