Tuesday, October 26, 2010

Chapter 7, 13, and what?

On a typical day, I get at least one client walking into my office asking to file a Chapter 7 bankruptcy. This client had read about Chapter 7 bankruptcy on the internet and had decided that it's the way to go. I do love the internet, because its an unlimited library of knowledge and experience--shared by people across the United States who are facing the same exact situation (they're broke). Unforuntately, the law isn't the same across the United States. Accept what you read on the internet with an open mind.

The bankruptcy code is Title 11 of the United States Code (11 U.S.C). Title 11, like other titles, is broken up into chapters. It's organized by categories, for example, Chapter 1 contains all the definitions. Chapter 3 contains information on starting a case. Chapter 5 contains information on debtor's duties and rights and so on. Chapter 7, 9, 11, 12, 13 defines the types of relief available. For the sake of killing everyone, I will only and quickly talk about Chapter 7 and 13.

Chapter 7 bankruptcy is the type that wipes clear all debts (except for special debts like students loans, child support, tax, etc.) This type of relief is available to businesses and people who make less than the state's median income. The U.S. Department of Justice publishes a list of median income for all 50 states, and you have to make less than the median income to file a Chapter 7. There are still ways to get around this test, but I won't go into details here. The link is found here: http://www.justice.gov/ust/eo/bapcpa/20101101/bci_data/median_income_table.htm .

As you can see from this list, half of Washington residents with a household of one make less than $49,124/year. The other half make more than that. If you live in Washington, and you live by yourself, you have to make less than $49,124/year to qualify for a Chapter 7. The income calculation is convoluted and I won't go into details here. In this economy, most people I meet do qualify.

Chapter 13 is the type of bankruptcy where the debtor proposes a payment plan to the court. It requires debtors to pay back a portion of their debts. The amount of debt that someone has to pay back depends on their income. In some case, it might be all or it might be none. Chapter 13 is for those who either make more than the median income, have excess properties that can't be protected in a Chapter 7, or are trying to avoid foreclosure. Chapter 13 is complicated and I wouldn't recommend anyone taking it on themselves. (See my post on hiring a lawyer).

I had an extremely upset person come into my office demanding to file a Chapter 7. He was so upset at me when I told him he didn't qualify that he threatened to report me to the state bar. I told him that if bankruptcy law was easy, he wouldn't have came to me.

Sorry for the seriousness of this post. There's just no fun way to explain bankruptcy...


  1. I can't wait for the art to arrive. The office still looks so plain. I think we need more plants!

  2. I hate it when extremely angry people come and demand the wrong things when they clearly did not do enough research :/

    Gosh, your new office suite looks great!

  3. Another very informative article! Thanks for sharing the simple version of Chapter 7 vs. Chapter 13 relief.

    Did the angry person storm out of the office and slam your door? Sounds like something he would do! Good riddance to him and nice response.

    The office is coming along so nicely! Love the paint and furniture choice

  4. I can't wait for Steph to give me a tour of the office :) lol

  5. I hate asking "in-depth" questions online. The responses I get from searches usually end up being an ad of some sort. It`s really annoying..and I can never find a specific answer a lot of the time!!

    Wow, there are so many things ("Chapters") that lawyers have to be familiar with. That's so much reading. Thanks for the info! Even though I'm not an American, I find it interesting to learn about this type of stuff. It seems a lot easier reading off someone's summarization than reading it off a textbook. :P

    The office looks great! Can't wait to see more photos of it through you or Steph! :D

    xx The Little Dust Princess

  6. People can be so irrational some times.
    I cant believe I finally found a blog that is interesting, serious and informing.
    Much thanks!!

  7. Interesting post today. Now I now the difference between chapter 7 and chapter 13. This is awesome, I'm learning from an expert for free. ha ha! I mean even though you sum it up in little paragraphs its really helpful for others like myself here to know what the difference is. :)

    I'm sure its not your first time seeing a person like that guy you explain being upset coming at you like that? Hopefully he will find his help somewhere. -__-

    I look forwards to your next post! :)

  8. How did the disgruntle person take your response? These kinds of attitudes from people comes with the territory of working in a customer services types of jobs. As long as you're selling your service to someone, they automatically assume they can behave how they wish. Which is lame. Anyways, I've yet learned something new! Not to get too much into your clientèle, but are they generally more younger people filing bankruptcy or 30++? I've seem to run into people who are in their 20s talking about bankruptcy and it's "mind blasting".

    On a lighter note, the office is starting to look pretty nice! Congrats on the progress!

  9. I really dislike demading people. This info is so useful I never knew anything about bankruptcy I hope to learn more by reading your blog. You guys have a nice looking office.

  10. Wow, that was quick. What would the case be if a person wanted to file for a chapter 7 but didn't have a job at all? Would they have to file for a different chapter or do they not qualify at all? I'm assuming you couldn't have an occupation for a long period of time?

    It would've been amazing if it wiped student loans too, lol. I would've been tempted, to be honest. =(

  11. Some individuals have to file Chapter 13 and do not have the option of filing Chapter 7. Under new federal laws, individuals who have a higher income than the average income of families of the same size in their state cannot file Chapter 7 Bankruptcy. Therefore, higher income individuals are forced to work to repay their debts. However, they can do so easier under Chapter 13 Bankruptcy than they could on their own.

  12. Where's the pic of my office?


  13. Really interesting, thank you for explaining this so clearly. The topic sounds like one of those things that could get super confusing, so good job writing it out! aww it's easy to see how people could get very frustrated, but they shouldn't be so rude. the office looks nice! I love it when offices have a lot of windows/are well-lit.

  14. I find this post quite helpful and thanks for explaining it too! As a graduate student...I'm drowing in debt...8(
    But lovely office!

    <33 Rena

  15. I'm new to your blog.. I think everyone always want it their way and always think "customers are always right" when most of the time they are not. They need to understand the other person side and must trust what they are saying because its their job to get all the information and stuff for them.

    Anyways, the office looks great some arts and painting will look awesome. goodluck!~

  16. Wow that sucks that the guy took out his anger on you. Like seriously? He's the one who had an issue that he couldn't fix himself, and when you tell him what he doesn't want to hear, he goes off and threatens you?

    Sigh. People.

  17. Thanks for teaching me the difference between Chapter 3 and Chapter 7 filing. A friend of a friend filed successfully for Chapter 3 and is living off the state right now. It's not fair to the rest of us who are making a living for ourselves but at the time I guess it was the best thing for her to do.

  18. cute office, but it needs to be warmed up a little!

    on a serious note... this makes me curious of what kind of bankruptcy my parents had to file... i should probably discuss this kind of stuff with them, but i don't want to upset anyone... but i suppose it cant be helped at this point huh?

  19. Hi Minh!

    I think your office needs to be decked out in Steph's DSK stuff! By that I don't mean making everything look girly but did you think of getting a small plant and decorating it with the swarovski pieces and make it like a cute little Christmas tree? It can spice up your office a bit and add some bling!

    from Vancouver, Canada :)

  20. well, he is going through tougher times, so i can see why he has an attitude issue, but then again, it isn't an excuse for people to act so rude.

    anyways, i was wondering, which type of bankruptcy is best for someone who has been unemployed and owes over 100,000 in debts to credit cards. the money was mainly used to pay for court settlements after a force closing of a restaurant, and for living costs after facing unemployment?


  21. Thanks for writing a blog about laws and cases, you do not know what I am learning to read you.

  22. Ok, can I just say how sad this statement is: On a typical day, I get at least one client walking into my office asking to file a Chapter 7 bankruptcy. AT LEAST ONE A DAY???? That is scary as hell! I didn't even know there were qualifications to file bankruptcy! These posts are SO interesting!

  23. Gosh the law! too complicated for me to wrap my head around so i will proceed to move to a deserted island or into the wild where is doesn't matter too much and i will just live like a nomad... NO?