Debating on whether you should file Chapter 7 or Chapter 13 bankruptcy?
Depending on your personal circumstances, you may find that one option clearly outweighs the other. Chapter 7 and Chapter 13 bankruptcy are two different legal options with different potential consequences, but both are valuable tools to help borrowers who are over their heads in debt.
Speaking with an attorney specializing in bankruptcy can help you determine which bankruptcy filing best serves your needs after a careful examination of your specific circumstances.
Chapter 7 Bankruptcy
Chapter 7 works best for individuals with a large amount of debt, limited income, and few, if any assets. Often referred to as the “liquidation” chapter, Chapter 7 is used by individuals, partnerships, or corporations who are unable to repair their financial situation. Generally, the biggest distinction in Chapter 7 is if the case is an “asset” or “no asset” case. In Chapter 7 asset cases, the debtor’s estate is liquidated under the rules of the bankruptcy code. Liquidation is the process through which the debtor’s non-exempt property is sold for cash by a trustee and the proceeds are distributed to creditors.
The bulk of Chapter 7 filings are classified as “no asset” cases because many people who file have no assets as defined by the bankruptcy code so there is nothing to liquidate. The bankruptcy code requires the use of a “means test” to determine your eligibility to file a Chapter 7 which is based on the median income in your state combined with calculations tied to your income and expenses. The Chapter 7 bankruptcy has a general duration of six months and culminates with the issuance of a discharge order. A Chapter 7 discharge discharges most of your debt, but some debts generally cannot be discharged (school loan, some taxes, and most child/spousal support payments). Only debts incurred prior to filing are subject to discharge and you can only receive a discharge under Chapter 7 every eight years.
Chapter 13 Bankruptcy
Chapter 13 works best for individuals with a regular income who is overcome by debts but believes such debt can be repaid within a reasonable period of time. Often referred to as “reorganization” or a “wage earners plan,” Chapter 13 enables individuals with regular income to develop a plan in which the individual agrees to pay a certain percentage of future income to the bankruptcy court trustee for payment to creditors to repay all or part of their debts.
Under Chapter 13, individuals propose a repayment plan to make installment payments to creditors over three to five years. If the court approves the plan, the debtor will be under the court’s protection while repaying such debts. Any individual, even if self-employed or operating an unincorporate business, is eligible for chapter 13 relief if the individual’s unsecured debts are less than $394,725 and secured debts are less than $1,184,200 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect the changes in the consumer price index.
The most significant advantage of Chapter 13 is providing individuals an opportunity to save their homes from foreclosure by stopping foreclosure proceedings and curing delinquent mortgage payments over time.
Every situation is different, and it is crucial to speak with an experienced bankruptcy attorney to determine which type of bankruptcy filing would work best for your current situation. The Law Offices of Nicholas V. Rogers, Esq. offer free consultations and are here to assist you obtain financial freedom.
The information is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.