What is Bankruptcy?

Bankruptcy is a legal process where a “debtor” can “discharge” (wipe out/eliminate) certain debts. Bankruptcy has been around for thousands of years and has origins in the Bible (Old Testament). Bankruptcy in the United States is a Federal Law and is a right granted in the US Constitution. The purpose of a Bankruptcy filing is to provide a person or business that is in financial trouble with a “Fresh Start.”

There are several types of Bankruptcy. The McCune Law Firm specialized in consumer bankruptcy (helping individuals and small businesses). The two forms of bankruptcy relief available to consumers are Chapter 7 and Chapter 13.

Chapter 7

This is the simplest and most common form of bankruptcy. Usually 4 out of 5 bankruptcy filings are Chapter 7. In 2009, over 1 million Americans filed a Chapter 7 bankruptcy and over 28,000 were filed in Colorado. A Chapter 7 filing gets rid of “unsecured debt” (i.e. credit cards, medical bills, payday loans) and allows the debtor to make decisions with what they want to do with their “secured debt” (i.e. car creditor, home mortgage company). Certain debts will survive a Chapter 7 filing (student loans, child support, certain tax debts). A Chapter 7 bankruptcy can typically be completed in around four months. Most property people own is considered “exempt” and protected from your creditors in a Chapter 7 case. Please see our “Expert Answers” section for more information on what property is “exempt” and therefore protected from your creditors. A Chapter 7 filing will immediately stop garnishments, law suits, harassment, foreclosure and repossession.

Chapter 13

This is a more complex form of bankruptcy and is less common (typically about 15% of bankruptcy filings). Usually people will file Chapter 13 to get current on home mortgage payments, to pay the true value of their car (get out of a bad deal) or to pay back owed taxes without penalties or interest. A debtor may also be required to file a Chapter 13 due to a prior Chapter 7 filed in the last 8 years or due to higher income. A Chapter 13 can also stop foreclosure on your house or mobile home and allow you the opportunity to catch up on missed payments. In some cases, we can eliminate (“strip off”) a second mortgage on a debtor’s home while keeping the house! In a Chapter 13, the debtor will only owe a portion of their debt and is required to make timely payments to a Trustee appointed to your case who will then pay your creditors.