As I’ve explained in earlier bankruptcy blogs, the two most often-used types of bankruptcy to provide relief from consumer debt are Chapter 7 and Chapter 13. By way of quick review, a Chapter 7 bankruptcy is a liquidation bankruptcy. While that only occasionally happens, the bankruptcy court trustee can take legal possession of the debtor’s assets (except for certain assets that are exempt under the law), sell those assets, using the cash to pay each of the creditors at least part of what is owed. Then, some of the remaining debts are discharged, meaning forgiven. (Of course, there are debts that cannot be discharged, including child support, alimony, most student loans, and certain taxes.)

Chapter 13 bankruptcies, by contrast, are reorganizations. This form of bankruptcy usually allows a debtor to keep most or all of his assets and to arrange a full or partial repayment of debts over a three to five year period. All of the debtor’s “disposable” income goes towards repaying the Chapter 13 debts according to the agreement.

One very ironic thing that happens around bankruptcy courts is that creditors’ representatives stand outside the courtroom waiting for the proceedings to conclude. They then approach the person who’s just filed bankruptcy and make an offer to “reaffirm” the debt owed to that company. Say you’ve just had your debt to ABC Company discharged and wiped off the records in court as part of your Chapter 7 bankruptcy. Now ABC is offering you new credit if you’ll take the old debt back as well. Needless to say, almost never (there could be some exceptions with very small debts) is this offer anything but a trap for the unwary.

Renew your vows with a spouse? Wonderful idea! Reaffirm your debts? Before even considering the possibility, better renew your talks with your consumer bankruptcy attorney!