The prospect of facing bankruptcy is daunting, yet taking charge of a difficult financial situation is often the first step toward peace of mind. Ms. Callaway is passionate about — and effective at — helping her clients exercise their rights under our government’s complicated bankruptcy protections.
Under federal law, certain debtors are entitled to have debts canceled or modified through a legal process known as bankruptcy. For individual debtors (i.e., not businesses), there are two types of bankruptcy defined under IRS Code Chapters 7 and 13.
Chapter 7 Bankruptcy: Depending on income, assets, and debt, some or all of a person’s debt may be eligible for cancellation. In legal terms, it is said that such debt is “discharged.” How much of a person’s debt can be discharged can only be determined after all of a client’s income, asset, debt, and cash flow data is given to Ms. Callaway, and she has reviewed this data in the context of federal bankruptcy law. As a general rule, if debt exceeds assets and income, then a Chapter 7 discharge is an option. If, however, a debtor earns too much money to qualify for a Chapter 7 discharge, the next bankruptcy option is Chapter 13.
Not all debts, however, can be discharged under Chapter 7 bankruptcy. The most common debts that cannot be discharged are those for child support, alimony, or other debts resulting from divorce order or agreement.
Chapter 13 Bankruptcy: Chapter 13 bankruptcy, often called “wage-earner bankruptcy,” is typically used by individuals to reorganize their financial affairs under a three to five-year repayment plan. The payment plan is built specifically around your ability to pay. To qualify for Chapter 13, you must have (1) regular income and (2) no more than $250,000 in unsecured debt and $750,000 in secured debt. Chapter 13 is often an option for homeowners behind on mortgage payments who want to prevent foreclosure. During the repayment period, credit card companies may not charge interest and creditors are forbidden from harassing you. As long as debtors make all their payments on their repayment plan, any debt remaining at the end of the plan will be discharged. Chapter 13 enables debtors to make headway on debt without constant pressure from creditors.
Creditor’s rights: Often, a creditor receives a notice that a customer or client has filed for bankruptcy protection. Creditors have certain rights in bankruptcy and often need to take certain steps to protect those rights. Ms. Callaway can guide a creditor of a person in bankruptcy to protect that creditor’s right to share in any distribution of the assets of the debtor.