Different types of bankruptcy have different impacts on the credit of the petitioner. In some cases, California residents who file for bankruptcy will have the filing reported on their credit for 10 years; in other cases, it’s reported for only 7 years. The two most common types of bankruptcy filing for individuals are under Chapter 13 and Chapter 7 of the federal bankruptcy code.
Chapter 13 bankruptcy is sometimes referred to as wage earner’s bankruptcy because it is designed for people who have regular income but are struggling to pay their debts. In a Chapter 13 case, the petitioner submits a payment plan for approval by the court. The plan is for a period of either three or five years, during which time the petitioner pays back as much of the debt as he or she can. At the conclusion of the plan, any remaining debts are wiped out. A Chapter 13 filing typically remains on the person’s credit report for a period of seven years.
A Chapter 7 case, by contrast, is typically much shorter. Most debts are forgiven at the conclusion of the process, but certain types of debt are not dischargeable. A Chapter 7 filing will typically be listed on the petitioner’s credit report for 10 years. In order to file under Chapter 7, the petitioner must pass the means test, which compares the person’s income to the median income for the area. It may be possible in either type of bankruptcy for the petitioner to keep some important assets.
An attorney with experience practicing bankruptcy law might be able to help California residents reduce or eliminate debts by drafting and filing a bankruptcy petition on their behalf. An attorney may help the client prepare for bankruptcy and complete requirements like pre-bankruptcy counseling. An attorney may also help by communicating with the bankruptcy trustee and the client’s creditors.