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Bankruptcy Questions Often Asked

Updated on August 14, 2014

Recent surveys indicate that the unemployment rate in California has steadily been declining and many financial analysts foresee a further small boom in the state’s economic development, rightfully earning its place of distinction in the financial arena. Conversely, further studies also reveal that there has been a great surge of credit usage by the average family in the last decade.


The average family is burdened with at least twenty thousand ($20,000.00) to forty thousand ($40,000.00) dollars of credit debt. In the event of the consumer’s inability to repay their debts, one of the only alternatives is bankruptcy. Here are some often asked questions about bankruptcy.

Q. What is Chapter 7 Bankruptcy?
A. Chapter 7, otherwise known as the “straight” or “consumer bankruptcy” allows the debtor to have a fresh start. In a Chapter 7, an individual debtor can exempt certain assets from the reach of the creditors upon the application of allowable exemptions provided by law.

Q. What is a Chapter 13 Bankruptcy?
A. Chapter 13 of the Bankruptcy code is structured for the reorganization of wage earners or small businesses through a new payment schedule. It is also known as the “wage earner’s plan” or “debt repayment plan.” The purpose of this is to make a plan to pay to the Trustee all of the debtor’s disposable income for a period of 36 months, thereby permitting the Trustee to repay the debtor’s creditors. The amount to be paid to the debtor’s unsecured creditors is computed based on the remaining amount of disposable income.

Q. What is the main difference between Chapter 13 and Chapter 7?
A. Chapter 7 will discharge most unsecured debts but does not solve problems
associated with arrearages on consensual secured debts like late mortgage

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Q. What is a Chapter 20?
A. There is no Chapter 20 under the bankruptcy law. However, both the courts and the attorneys refer to a case as falling within a chapter 20 when a debtor files a chapter 7 and discharges his unsecured debts and later on files a chapter 13 to address his secured debts as well as other assets that have been used as a collateral for delinquent loans.

Q. What is a foreclosure?
A. A foreclosure is an enforcement by the beneficiary of a deed of trust by sale of the real property given as security for the loan. The lender can initiate this procedure if the borrower falls behind on the loan payments. Note that in a foreclosure, the borrower’s home can be sold without any court action, but the borrower does have certain rights under the law.

Q. Will filing bankruptcy stop a foreclosure?
A. Yes, a bankruptcy will stop a foreclosure. Under bankruptcy, a stay happens automatically preventing any creditor from foreclosing on property of the debtor. The stay continues until the court says otherwise or the case is dismissed or closed.

If you have questions about any type bankruptcy in a transaction, always consult with a bankruptcy attorney.


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