Filing for bankruptcy may seem daunting — but a professional can help. Outcomes vary state to state and depend on what the individual’s actual debt picture looks like. There are vast differences between filing a Chapter 13 or a Chapter 7, and thresholds to qualify for each one vary.

But no matter which route is followed, remember that the aim of bankruptcy is not to take away everything from a person. Rather, it’s meant to help them begin anew.  

“[Courts] They're not taking the shirt off your back. Bankruptcy is about a fresh start,” says attorney Matthew Schmidt.

In the third episode of Orcutt Answers, our host Shawn Orcutt welcomes Matthew, an associate at The Law Offices of John T. Orcutt, to explain the differences between filing a Chapter 13 and a Chapter 7, the role of a trustee and the general process for each type of filing. Matthew also talks about how not all debts are dischargeable, such as student loans or taxes (at least, for a certain amount of time).

The episode reveals what happens when someone’s financial circumstances change — for example, if they lose their job — and can no longer make payments to a trustee after filing Chapter 13. Matthew also shares some advantages from filing a Chapter 13, which can help a client turn their financial situation around.

“Because there's special power with that Chapter 13 trustee, we can actually, in some instances, pay less than what you owe,” says Matthew. “You're still going to walk away at the end, owning that car at the end of that five years outright and you will pay less.”

Name: Matthew Schmidt

What he does: As an associate attorney at the law offices of John T. Orcutt, Matthew mainly practices in the Eastern District of North Carolina between Raleigh and Fayetteville. He focuses his daily practice entirely on consumer bankruptcy, but has also practiced criminal, DWI/Traffic and Social Security disability matters. 

Company: The Law Offices of John T. Orcutt 

Words of wisdom: “The situation is beyond everybody's control and we're all struggling. We're all unhappy with things. There's a way out.”

Connect: LinkedIn 

Here’s what we learned about debt and bankruptcy in this episode 

★    Means test thresholds vary by state and are the main step to deciding if someone qualifies for Chapter 7. Means tests look at the average income in the state and your area as well as what a client has left over after paying for their necessary expenses like housing, food and a car payment.

★    With Chapter 13, people may end up paying less than they owe. The repayment plan to a trustee can be less than what a person owes on their debt, such as with a lower interest rate.

★    It’s possible to go from Chapter 13 to Chapter 7. Chapter 7 is essentially for people who don’t have enough money to pay their creditors. But if their financial circumstances change and they can no longer afford Chapter 13 payments, Chapter 7 may be a viable option.

[02:26] The 411 on automatic stay vs. discharge orders: An automatic stay is an order that gets creditors temporarily off of people’s backs. It’s a quick fix to give people some peace of mind. A discharge order means you are no longer personally liable for...