Inner Banks Legal Services helps people file for bankruptcy. Bankruptcy is a federal process and the bankruptcy court is part of the federal court system. The information found on this page is not intended to be legal advice, and should not be taken as legal advice. This information offers brief and general information on the bankruptcy process.

If you are considering filing for bankruptcy protection, we recommend you consult with a bankruptcy attorney to discuss how a bankruptcy would affect you personally.

Common Bankruptcy Terms

Chapter 7 v. Chapter 13

Chapter 7 bankruptcy is designed to zero out the amount due to your unsecured creditors. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. To determine if you have disposable income, you must first determine your median income and then subtract your applicable deductions. The median income for your household size can be found here. The applicable deductions from your median income can be found here. If you have disposable income after calculation of your median income and subtracting the applicable deductions, you may be required to file a Chapter 13 bankruptcy. As a result, Chapter 7 bankruptcy is typically for low-income debtors.

When you file for Chapter 7 bankruptcy, a trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee's job is to sell your non-exempt property to pay back your unsecured creditors. If all of your property is exempt, your unsecured creditors receive nothing. If you are past-due to your secured creditors, and you wish to bring your payments current on your house, car, or other secured property in order to keep it, you will need to file a Chapter 13 bankruptcy.

In general, the Chapter 7 bankruptcy process begins and ends in roughly 90 days. A Chapter 7 bankruptcy will remain on your credit report for 10 years. However, shortly after filing you can anticipate your credit score increasing. Neither employers nor landlords may discriminate against you solely based on your bankruptcy filing.

Chapter 13 bankruptcy is designed for debtors with a regular source of income who can pay back all or a portion of their unsecured creditors through a monthly repayment plan. The amount a debtor must pay back is based on the debtor's income, expenses, types of debt, non-exempt property, and past due amount owing to secured creditors. Some benefits of filing a Chapter 13 bankruptcy include the following:

When you file for Chapter 13 bankruptcy, a trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 13 trustee's job is to collect your monthly plan payment and distribute the payments to your secured creditors, and proportionally to your unsecured creditors. The plan generally lasts between 36 and 60 months (3 to 5 years). To qualify for a Chapter 13 bankruptcy, the debtor must not have secured debts totaling more than $1,184,200.00, or unsecured debts totaling more than $394,725.00.

A Chapter 13 bankruptcy will remain on your credit report for 7 years. However, shortly after filing you can anticipate your credit score increasing. Neither employers nor landlords may discriminate against you solely based on your bankruptcy filing.

Debt Settlement, Debt Consolidation, or Bankruptcy

Debt Settlement is a process in which you hire a third party company to negotiate with your creditors to settle your unsecured debts for less than what is owed. Secured debts cannot be reduced through debt settlement. While some debt settlement companies can get your unsecured debts reduced to a fraction of what you owe, it will cost more than filing a bankruptcy. Your unsecured creditors do not have an obligation to work with the debt settlement company or agree to the settlement proposed by the debt settlement company; as such there is a chance that the debt settlement company will not be able to obtain a settlement for some of your unsecured debts. Debt settlement companies generally try to negotiate your smaller debts first, leaving interest and fees on your larger debts to grow.

The debt settlement company will take a portion of your monthly debt settlement payments as a fee for the service. Most debt settlement companies will charge upfront fees in addition to the monthly service fee, and many will not pay your unsecured creditors until there is enough money in your account to settle the full debt settlement for each individual creditor in one lump sum amount. During the time in which the debt settlement company is holding your monthly payments and accruing the full settlement amount, your credit will take a hit due to your creditors not receiving payments on the debt. For these reasons, debt settlement is rarely successful.

Debt Consolidation is a process in which several of your loans are consolidated, or lumped together, to pay one single loan payment with a single interest rate. Generally, a bank will require this consolidated loan be secured by your home or other personal property (such as your car). This is a good option if you have the income available to make the consolidated loan payment, as it will allow you the ability to pay down your debt. However, if your credit is already in bad shape and you have a low credit score, or no available equity in your home or car to secure the consolidation loan, it is unlikely that you will be able to obtain such a loan.

Bankruptcy is a personal decision that should be made after consulting with a bankruptcy attorney, but there are some advantages that exist when compared to debt settlement or debt consolidation:

Due to these advantages, we often see bankruptcy debtors rebuild their credit report faster after filing a bankruptcy than they could have done so through settlement or consolidation.

Inner Banks Legal Services is a debt relief agency as defined by 11 U.S.C. §528.
We help people file for bankruptcy relief under the Bankruptcy Code.