GIGI WINK: DECIPHERING BETWEEN CHAPTERS 7 & 13

Gigi Wink, from Wink & Wink, was our special guest on Thursday, June 28, 2018. In addition to answering caller’s questions, Gigi Wink explained the basic difference between filing bankruptcies under Chapter 7 and Chapter 13 .

Which one is for you?

In a Chapter 7, all non-exempt assets are sold and proceeds are distributed pro-rata among creditors (according to a priority schedule set by law). Whatever is not paid by liquidation is discharged. You owe nothing more. If you have no assets, your unsecured debt simply goes away! If you have secured loans (like a car loan), your personal liability is eliminated forever on the loan. You are no longer held personally responsible for the debt. You may choose to keep paying certain loans - like a car loan - because you want to keep your car. But you can later choose to stop paying it. The lender has the choice to reposess the car or not. In any case, you are not liable for deficiencies. Even if you stop paying on the loan years after the bankruptcy, you are still exempt from personal liability UNLESS you “reaffirm” the loan.

What is "reaffirming" a loan? It is basically saying,“Even though I can get out of my personal responsibility on this debt, I choose to take personal responsibility!”. By the way, most bankruptcy attorneys will not recommend reaffirming any debt - ever. Why would anyone go through the pain and misery of a bankruptcy only to reaffirm secured debt? It is ridiculous, according to Wink.

What about Chapter 13? That is a completely different animal, says Wink. There are two reasons for filing Chapter 13.

Scenario One - you make too much money to file a Chapter 7. If this is the case (as determined by the law), the court calculates how much you must pay to creditors in monthly payments for a designated period (as determined by the law). At the end of your payment plan, the rest of your unsecured debt is discharged. But regarding secured debt there is ONE BIG DIFFERENCE between Chapter 7 and Chapter 13. Under Chapter 13 if you choose to keep the secured property and pay on it, you are reaffirming it. So, if you ever stop paying those secured loans in the future, you face all of the same consequences as before bankruptcy.

Scenario Two - As previously mentioned, the second reason for filing Chapter 13 is to keep a certain property.  Under this scenario, you must make monthly payments to "buy out" the unsecured, non-exempt property you want to keep. Plus you must bring all secured loans current. At the end of your payment plan, you simply continue to pay on your secured debt, like normal.  This scenario often fails because people underestimate how difficult it will be to make those payments. They often decide to "toss in the towel" anmd convert to a Chapter 7, where they simply liquidate on move on.