Chapter 7 Vs Chapter : The Difference
Most people tend to file bankruptcy under Chapter 7 because its easier and the preferred option for people with few assets and no income. For some that still have income, Chapter 13 is a better option to catch up with their payments and keep their valuable assets.
In Chapter 7, its when you claim that you dont have any disposable income to pay off your debt. So, if you want to eliminate your debt, your assets will be seized and sold off so that you can pay a portion of your debt.
In Chapter 13, you have the option to keep all your assets, regardless of their value. Its when you enter into a debt repayment plan, so as long as you can keep up with the payment to your creditors, your properties are safe.
Its normal to fear losing your home after you file bankruptcy. Your house, though, can be exempt depending on how much its worth if you file Chapter 7 bankruptcy. However, you need to be current in your mortgage payments to keep your house.
The exemptions vary from state to state. In some cases, you can keep your house and some of your assets because their equity is lower than the bankruptcy exemption amount, which well explain more in the following sections.
Role Of The Case Trustee
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002. A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtor’s property should consult an attorney for advice.
What Happens When Declaring Bankruptcy
If you find yourself struggling to pay your bills and facing the prospect of losing everything, you may have no choice but to file for bankruptcy. One of the most important things that happen immediately upon filing for bankruptcy is that an automatic stay is placed on any debt collection attempts that you are dealing with.
This means that the harassing phone calls and letters you’ve been receiving from mortgage companies, credit card companies, debt collectors, and others should stop immediately. They are to refrain from contacting you while the bankruptcy process is sorted out. In addition, wages cannot be garnished, and no money can be deducted from your bank account.
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Still Have Questions Speak To A Bankruptcy Attorney
Bankruptcy gives you a fresh start. But you need to have extensive knowledge of the bankruptcy laws and procedures if you are thinking of filing your bankruptcy petition without an attorney. As bankruptcy has a range of long-lasting consequences, it may be best to speak to a bankruptcy lawyer to guide you based on your particular situation.
What Happens When I File Bankruptcy
After your Licensed Insolvency Trustee , files the necessary paperwork with the Office of the Superintendent of Bankruptcy, you are officially bankrupt.
Once you have become bankrupt you will promptly receive protection from your creditors through what is known as the stay of proceedings.
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* Any lawsuits to attempt collection by your creditors will stop
* Wage garnishments will stop
* Any non-exempt property will be surrendered to the trustee and sold.
The proceeds will be distributed to your creditors.
Once you go bankrupt, a record of the fact will be reported to the credit bureaus and your credit report.
You will stop paying on all of your unsecured debts, although they wont be legally eliminated until your bankruptcy is over.
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The Benefits And Drawbacks Of Filing For Bankruptcy
Bankruptcy may be a viable option when your debt surpasses your assets and capacity to repay your creditors. There are many benefits and drawbacks to filing for bankruptcy debt relief. The following are some of the benefits of filing for bankruptcy:
- A fresh start that may assist you in building a secure financial future
- The opportunity to keep a large portion, if not all, of your personal belongings and assets
- All debt collection efforts by your creditors will be forced to stop.
In addition to ending harassing phone calls and other debt collection tactics, filing for bankruptcy relief has certain drawbacks that you should be aware of. The following are some of the disadvantages of filing for bankruptcy:
- Bankruptcy will remain on your credit report for 7 to 10 years.
- When you can finally get financing after filing for bankruptcy, you may face higher interest rates.
- You may be required to attend court-ordered credit counselling.
- Depending on the kind of bankruptcy you filed, you wont be able to utilize bankruptcy to discharge excessive debt for at least four to eight years.
Each persons or companys debt burden is unique, requiring thorough examination and a careful debt reduction strategy. Your lawyer can help you develop a plan to restructure, decrease, or eliminate your debt by taking a clear, objective, and thorough look at your financial position.
You Will Likely Have To Close Your Business
Some companies can declare bankruptcy and stay in operation, but this process is expensive, complex, and time-consuming. Companies that stay in operation file Chapter 11 and work with the courts to create a plan to pay off the debt over time.
Most small businesses that declare bankruptcy file Chapter 7 bankruptcy and close their doors immediately. This bankruptcy option requires asset liquidation to pay off their debt obligations.
For example, a restaurant may declare bankruptcy and sell its catering van to pay off a few existing obligations. Then, it would sell its kitchen equipment, furniture, and remaining inventory to reduce debts further. By the time those steps are done, the restaurant owner wont be able to continue operating anyways.
Bankruptcy is not just an easy way to erase debtit could cause you to lose your business entirely, leaving you and your employees without work.
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When Bankruptcy Is The Best Option
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Bankruptcy isnt the end of the world. It may even be good for you.
Bankruptcy stops collection calls, lawsuits and wage garnishments. It erases debt. And despite what youve heard, bankruptcy may help your credit scores.
But thats not the whole story. Most people struggle so long with their debt that their credit is already battered by the time they file for bankruptcy. And once they do, their scores typically rise, not fall. If the debt is erased which is known in bankruptcy court as a discharge scores go up even more.
Within a year, youre way better off, says Jaromir Nosal, assistant professor of economics at Boston College, who co-authored a study for the Federal Reserve Bank of New York about the effects of bankruptcy. Its a pretty rapid rate of recovery.
Can I File For Bankruptcy On My Own
You can file for bankruptcy on your own, but the process is long and complicated, and you could benefit from the guidance and clarity a bankruptcy attorney can provide. Even the U.S. Courts recommend working with an attorney to help you fully understand your options, exemptions, bankruptcys benefits, and the complexities of the process.
A bankruptcy lawyer will:
- Be familiar with applicable state and federal laws
- Obtain all necessary paperwork and documentation
- Explain files, schedules, and other paperwork
- Represent you at hearings and in court
For many bankruptcy filers, an important benefit of hiring a bankruptcy lawyer is their peace of mind. This comes from knowing each step is being met, and your fresh financial start will be error-free and effective.
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Secured Debts Versus Unsecured Debts
Anyone can file for bankruptcy relief regardless of how small or large their debt is. When you file for bankruptcy, you are required to list all the debts you owe. The court does not consider all debt equally.
It recognizes two types of debtsecured and unsecuredas follows:
- Secured debts are those where the original loan was backed up with property or collateral. Common secured debt includes a mortgage or vehicle loan.
- Unsecured debts are those where the original loan was offered based solely on your credit. These typically include credit cards, medical bills, and other bank loans.
Your bankruptcy lawyer will explain how the court weighs each type of debt. He will also clarify which debts are dischargeable depending on the bankruptcy chapter you choose.
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What Are The Chapter 7 Bankruptcy Income Limits
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In a Nutshell
Learn about the Chapter 7 bankruptcy income limits including how you may still be eligible for Chapter 7 relief under the bankruptcy means test even if your average income exceeds the median income.
Written byAttorney Andrea Wimmer.
The Chapter 7 income limits were added in 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act . Since Chapter 7 bankruptcy doesnât involve a repayment plan of any kind, Congress worried about an abuse of the bankruptcy process by filers who could afford to pay their debts.
To prevent this, Congress added a requirement for anyone filing any type of bankruptcy and set income limits for Chapter 7 relief. The bankruptcy means test calculation determines whether someone can afford to pay a portion of their consumer debts as part of a Chapter 13 bankruptcy.
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Is A Lawyer Necessary
Unlike corporations and partnerships, individuals can file for bankruptcy without an attorney. It’s called filling the case “pro se.” But because filing for bankruptcy is complex, and must be done correctly to succeed, it’s generally unwise to attempt it without the help of an attorney experienced in bankruptcy proceedings.
Even the Internal Revenue Service is sometimes willing to negotiate. You may be able to reduce the amount you owe in taxes or spread your payments out over time.
Explore Your Bankruptcy Options
Get the financial relief you are entitled to by filing for bankruptcy protection. Our team represents individuals and small business owners in Chapter 7 and Chapter 13 bankruptcy cases. We can also provide help filing for Chapter 11 reorganization bankruptcy and Chapter 12 bankruptcy for family farmers and fishermen.
We can help you through the petition and filing process. We can help you retain your assets when you choose Chapter 7 bankruptcy. We can even help you restructure financial debt through other bankruptcy filings with complex financial structures or extremely large debt loads. Call Farmer & Morris Law, PLLC to speak to a member of our client intake team and learn what happens if you declare bankruptcy today.
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Paying Your Filing Fees
When you file for bankruptcy, you have to pay a bankruptcy fee. The court is pretty strict about it. While it varies by state, its usually around $300 and youre expected to pay it immediately. The judge may allow you to pay it in installments if you cant come up with the money right away. The judge will give you an installment schedule spread over 120 days to pay it, and your bankruptcy proceedings dont start until the fee is paid. If you dont make the payments on time, the bankruptcy is dismissed.
Here For Your Questions
When youre facing debt you cant pay, you have enough to worry about already. We help make the process easy on you, and were here to guide you every step of the way.
If you have any other questions about what happens when you file for bankruptcy, youve come to the right place. The conversation is totally free. Just call me today at 901-327-2100 or fill out the form below.
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Why File For Chapter 7 Bankruptcy
So why might filing for Chapter 7 bankruptcy be better than just letting the house or car go through foreclosure or repossession? The answer is that it wipes out your obligation to pay the entire loan, including a deficiency balance.
Also, in some cases, it might prevent a tax obligation from being assessed because forgiven debt gets taxed as income. For instance, if you let your house go through foreclosure and the lender forgives the deficiency balance, you could receive a hefty tax bill at the end of the year. You can learn more about this type of tax liability by reading Tax Consequences When a Creditor Writes Off or Settles a Debt.
How Does Bankruptcy Affect My Debts
The moment you file for bankruptcy, the court issues an automatic stay on most of your debts. This means that creditors and debt collectors are not allowed to contact you regarding or attempt to collect on an outstanding debt. The automatic stay also bars a creditor from commencing or continuing a lawsuit against you to collect on a debt. Although most debts, repossessions, foreclosure proceedings, wage garnishments, and such are halted during the bankruptcy process, there are financial obligations you are not shielded from with the automatic stay. These include items like child support, alimony, and certain tax audit proceedings with the IRS.
The purpose of Chapter 7 or Chapter 13 bankruptcy is to wipe out your debts and create a clean slate so that you can have a fresh start. At the end of a Chapter 7 or Chapter 13 bankruptcy proceeding is the discharge, which absolves most people of most of their debt. Debts that are discharged no longer have to be paid and creditors cannot attempt to collect on them.
While many debts are dischargeable through bankruptcy, there are specific debts and obligations which you will still be responsible for. These include, but are not limited to, child support and alimony payments, student loans, criminal restitution, debts for personal injury/death resulting from a DUI/DWI, and certain taxes. In general, while your unsecure debt will be discharged via bankruptcy, many types of secure debt may not be.
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An Automatic Stay Will Stop Debt Collection
Filing for bankruptcy will trigger the automatic stay. The automatic stay will ensure that creditors will not try to collect from you while your case is pending. What this means is they can’t contact you to collect on debts like credit card debts and other types of unsecured debts. The automatic stay will also stop the garnishment of your wages.
Benefits Of Filing Bankruptcy
While filing for bankruptcy certainly has negative effects on your finances, it also boasts some benefits, especially when it comes to your long-term financial standing.
When your application gets approved, you get immediate protection through the automatic stay benefit.
Most people who have undergone bankruptcy believe that this is the greatest benefit of a bankruptcy.
Since you receive immunity from collectors, you avoid the stress of dealing with collection agents.
Another great benefit is the guarantee that you will not lose all your property because bankruptcy exemptions are there to protect you.
With these exemptions, you get to keep a certain amount of exempted property, and have the opportunity to reorganize your debts.
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Filing Bankruptcy: The Pros
While it shouldnt be undertaken lightly, bankruptcy can be a much-needed life raft for consumers who are drowning in debt. Heres a look at some of the benefits of filing for bankruptcy.
Youre granted an automatic stay
The instant you file, you are protected under a provision in bankruptcy law called the automatic stay. Creditors cannot pursue payment of your debts or take other actions against you until the bankruptcy is discharged or a repayment plan has been finalized.
Youll get relief from dealing with multiple creditors
Filing bankruptcy can mitigate the pressure and overwhelming nature of handling numerous creditors. In fact, you may experience immediate relief once your debts are discharged and you no longer have to repay some or all of your financial obligations.
Youll receive a court-appointed representative
Once you file your petition for bankruptcy, youll be assigned a trustee who will see your case through to discharge. They will operate on your behalf throughout the process, including handling all communication between you and your creditors, and in the case of Chapter 13 bankruptcy, they will be the one to receive and process your payments.
Bankruptcy can prevent further legal action
You may be able to keep some assets
Some back taxes can be addressed
Bankruptcy may prevent home foreclosure or car repossession
Your debts may be settled for less than what you owe
Some debts will be completely written off
Youll get a fresh start