Most of our cases are chapter 7 cases where you pay nothing back. A chapter 7 is very fast as it is typically completed in 90 days, and it is the least expensive option. So at this point you’re probably thinking, “well this sounds perfect; that is exactly what I want.” Normally, this is the best option for people. The primary reason that people will file chapter 13 instead of chapter 7 is because they don’t qualify for chapter 7 because they make too much money. If you make too much money, the court will not allow you to have your debts wiped out in a chapter 7. You will be required to pay at least some of your debt back in a chapter 13. Also, in a chapter 7 if you have any assets that are not exempt, like an extra car for example, the bankruptcy trustee will take it from you and sell it and pay your creditors with the proceeds. Chapter 7 will stay on your credit report for 10 yrs, although in my experience it typically takes only 2 years to recover to what we consider a “good” but not “excellent” FICO score of about 650. Also, the mortgage lending guidelines only require you to wait 2 years after discharge in order to get a mortgage loan. There are some other interesting differences between chapters, and that in some cases it makes financial sense to file a chapter 13 even though you are eligible for chapter 7.

Chapter 13 is not quite as common, but still accounts for 20% of the cases filed in the state of Nevada. In a chapter 13 you are required to pay some of your debt back. It could be only 5% of your debt, or in some cases, as much as 100% of your debt. I’d say on average it is about 30-40% of your debt. The amount you have to pay back is determined by your income. Your payment plan in a chapter 13 is 3 years if your income is under median, or 5 years if your income is over median. The fees for a chapter 13 are more expensive – but most of your expense is not in the attorney fees, but in the repayment to creditors. A chapter 13 trustee does not take assets. Chapter 13 can be a very useful tool for rewriting the terms of a loan. For example, we may be able to reduce the interest rate on your car loan, and reduce the principal amount you owe on it as well, and then reamortize your payments over the next 5 years to make your car payments much lower. Also, chapter 13 can allow us to remove voluntary liens such as a second mortgage, which cannot be removed in chapter 7. Chapter 13 stays on your credit for 7 years, the mortgage lending guidelines require you to wait only 1 year after payments start in order to get a mortgage loan.

Chapter 11 is much less common as less than 2% of cases are filed under this chapter. Chapter 11 is very similar to chapter 13 except that it is much more complicated and much more expensive and it is the only available chapter for businesses that want to reorganize.