Chapter 7 Vs Chapter 13 Bankruptcy
There are two types of bankruptcy for individuals: Chapter 7 bankruptcy and Chapter 13 bankruptcy:
- Chapter 7 Bankruptcy: Liquidation bankruptcy that wipes out the most unsecured debt as possible without the need to pay back through a repayment plan.
- Chapter 13 Bankruptcy: Also known as a wage earners plan. It allows the person with regular income to develop a strategy to repay all or part of their debts. Chapter 13 bankruptcy involves a repayment plan for over three to five years.
Chapter 7 bankruptcy allows you to keep your home if 1) you are current with your mortgage payments when you file for bankruptcy, and 2) your state laws approve of the bankruptcy exemption. There is a good chance youll lose your home if you are behind on mortgage payments.
Meanwhile, Chapter 13 bankruptcy may provide a grace period to catch up on mortgage payments if you are behind. If you can reach an agreement with the courts regarding a repayment plan, you may save the home.
Regarding your automobile, most chapter 7 cases allow you to keep the vehicle if you are current with payments. The same is true of chapter 13 situations, even if you are behind on loan payments. However, in both cases, expect a tighter leash from the lender and the potential to have to reaffirm the debt with a new agreement.
Protecting Equity With The Homestead Exemption In Chapter 7
You can keep your home in Chapter 7 bankruptcy if you dont have any equity in your home, or the homestead exemption covers all of your equity.
Figure out the equity amount. You can determine the amount of equity in your home by subtracting all mortgages and liens on your home from the current market value of your home . If you get a negative number, you dont have any equity, and you wont lose your home through bankruptcy. A positive number is your equity amount.
Find the homestead exemption. Homestead exemptions protect a certain amount of equity from the reach of the bankruptcy trustee. Most states protect at least some equity in your primary residence. A few states protect your entire home, regardless of how much equity you have. The federal exemptions protect up to $25,150 in your primary residence . Find the most recent federal bankruptcy exemption figures.
Are Bankruptcy Filings Publicly Available
Bankruptcies are considered a public record, but that doesn’t mean everyone’s going to know about it. Bankruptcy proceedings are filed in a system called Public Access to Court Electronic Records, or PACER for short.
For the most part, it’s more common for attorneys and creditors to use this system to look up information about your bankruptcy. But anyone can register and check if they want to. The service charges 10 cents per page to access case information.
Another way people might find out about your bankruptcy is if your local newspaper publishes public notices.
Finally, employers, landlords and creditors may be able to see on your credit report that you’ve filed bankruptcy when you apply for a job, an apartment lease, or a loan or credit card.
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What Happens To Your Property In Bankruptcy
Whether you can keep your property in bankruptcy depends on whether you file for Chapter 7 or Chapter 13 bankruptcy.
For the most part, you keep your property in Chapter 13 bankruptcy. ;
If you file under Chapter 7, you may have to give up some property . This mostly depends on whether your property is exempt. To learn more, be sure to check out ;our section on ;Bankruptcy Exemptions. If your property serves as collateral for a debt , there are other considerations.
Below you’ll find articles explaining what happens to your property in both Chapter 7 and Chapter 13 bankruptcy, and links to other sections with more in-depth articles. ;
Bankruptcy Exemptions In Nova Scotia
- No limit on clothes for you and your family
- No limit on fuel and food for your family
- Up to $5,000 in household furniture and appliances
- One motor vehicle up to $6,500
- All medical and health aids for you and your family
- Farm equipment, fishing nets, or other tools of your trade up to $7,500
- No limit on grain and seeds or livestock for domestic use by you and your family
For more information on bankruptcy exemptions in Nova Scotia, contact a local a BDO trustee near you.
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If I Own A Home Will I Lose It If I File A Chapter 7 Or A Chapter 13 Case
The answer to that question depends on many factors, such as the equity in your home and whether you are seriously delinquent on your mortgage payments at the time you file bankruptcy. If you are concerned about what will happen to your home, you should consult an experienced bankruptcy attorney for guidance based on your circumstances. However, in most bankruptcy cases, individuals are able to keep their homes. In general, those who file for Chapter 13 bankruptcy have a greater ability to protect their assets than those who file under Chapter 7.
In Indiana What Property Can I Keep
In a chapter 7 case, you can keep all property which the law says is exempt from the claims of creditors. Indiana exemptions provides a list of the exemptions available for Indiana. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didnt file bankruptcy.
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What Happens When I File A Chapter 7 Case
A bankruptcy proceeding is initiated by filing a petition with the bankruptcy court. When you file for Chapter 7 liquidation, the petition operates as an automatic stay, which generally prevents creditors from pursuing debt collection actions against you unless the bankruptcy judge approves it first. The automatic stay goes into effect immediately upon filing the petition; no court hearing or approval by a judge is necessary. When the case is filed, the United States trustee for your judicial district appoints a trustee to review your financial affairs and administer your case. The appointed trustee has the power to liquidate any asset you own that is not by law exempt from collection or subject to a lien in order to pay your creditors.
Prince Edward Island Bankruptcy Exemptions
On Prince Edward Island, property exempt from seizure in bankruptcy is set by the provincial government and applies to the equity in an asset. Equity is the difference between the value of the asset and what you owe on the asset.
Example: If you have a car worth $6,000 and you still owe $3,000 on the loan, the equity you have in the car is $3,000. In P.E.I., the exemption for a car is $6,500. In this case, you are entitled to keep the car and the creditors included in your bankruptcy claim cannot take it from you.
Chapter 7 Vs Chapter 1: 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.;
Different Types Of Bankruptcy
For individuals, there are two main types of bankruptcy cases. Most individual debtors file for Chapter 7, which can also be described as âstraightâ bankruptcy or âliquidation.â Under this plan all non-exempt assets are converted to cash , and secured creditors may have the item they financed turned over to them , unless the debtor reaffirms the debt with the courtâs approval prior to obtaining a discharge. Chapter 13, also called âreorganization,â is an option for people with regular income and debts that are less than the limits allowed by law. When you complete a Chapter 13 plan, you have the satisfaction of keeping your assets, paying your creditors, and possibly discharging some of your debts.
Bankruptcy is a serious step. If you choose to file Chapter 7 or Chapter 13, you will probably need to hire an attorney. Be sure to find an attorney who has experience handling the type of bankruptcy case you plan to file. The following overview of Chapter 7 and Chapter 13 will give you some idea of whatâs involved.
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Chapter 13 Bankruptcy In Pennsylvania
You can also file under Chapter 13 bankruptcy to be put on a wage earners plan. Through this process, debtors have the opportunity to devise a 3-to-5-year repayment plan with their creditors. Debtors must make sure to comply with all terms included in the repayment plan in order to have their debt discharged.
This chapter is usually best for bankruptcy filers who want to keep their house. Our Philadelphia bankruptcy lawyers can help explain why in a free legal consultation.
What Is An Automatic Stay
After you file for bankruptcy, you have the protection of an immediate, but temporary, automatic stay. The automatic stay can, for example, immediately stop a foreclosure, an eviction, car repossession, or wage garnishment. It can also stop debt collection, harassment, and disconnection of utilities.
The automatic stay may provide a powerful reason for filing for bankruptcy. In most of the situations listed above, the automatic stay can buy you a few days or weeks in which to figure out your next move. If your primary motivation in filing bankruptcy is to gain the benefits of the automatic stay, you donât need to file all of your papers at once. You just need to file the three-page petition, a signature declaration, and a listing of your creditors. In addition, within 180 days prior to filing, you will have to visit an approved credit counseling agency for advice and budget analysis. You will have to file a certification of such counseling when you file your petition. You have 15 days in which to file the rest of your papers. If you donât, your case will be dismissed.
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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.
Consider If You Can Afford Your Mortgage Every Month
If you kept your house throughout the bankruptcy process, you are free to keep your home after the bankruptcy â as long as you continue to pay the mortgage.
It may be that after you are free of all the rest of your debt you will be able to afford the mortgage payments easily. If so, you’ll be able to keep your house.However, if your income will not allow you to make your mortgage payments, the bank may eventually foreclose on your home.
Bankruptcy filers in this situation must carefully consider whether they want to keep their home, since bankruptcy gives them a unique opportunity to just walk away from the house and mortgage with no additional consequences, in most cases. It may also be easier to get your financial life under control if you are not burdened by large monthly mortgage payments.
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What Happens To The Property I Own That Is Subject To A Lien
In some cases, the Bankruptcy Court can set aside or reduce a lien on your property. Additionally, individuals who want to keep the property secured by a lien can enter into reaffirmation agreements with the secured creditors. Under a reaffirmation agreement, the debtor promises in writing to continue to pay the amount owed to the creditor despite the bankruptcy and in return, the creditor agrees to not seize the secured property so long as the debtor continues to make the necessary payments. All reaffirmation agreements must be filed with the bankruptcy court. If you default on your payments under a reaffirmation agreement, the creditor can hold you liable on any deficiency and repossess the secured property accordingly.
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Where Do I File If I Havent Lived In The Same State Or District For The Last Six Months
Federal Law requires that the case should be filed where the debtor has lived for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period. 28 U.S.C. sec 1408. This means that the case should be filed in the bankruptcy district in which the debtor has lived for the greatest portion of the last six months.
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Your Home And The Chapter 7 Bankruptcy Trustee
Chapters 7 and 13 work very differently, so it’s important to understand what to expectespecially if you want to keep valuable property in Chapter 7. Here’s how it works.
After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. However, you don’t lose everything because you can remove property reasonably necessary to maintain a home and employment. The trustee will sell any remaining assets and distribute the sales proceeds to your creditors.
Here’s the tricky partif you make a mistake, it’s unlikely that the bankruptcy judge will allow you to dismiss the case, and you could lose the house. So you must follow the rules carefully.
What Happens To My Credit If I Declare Bankruptcy
When you declare bankruptcy, it’s a sign that you are no longer paying your debts as originally agreed, and it can seriously damage your credit history. That said, the two types of bankruptcy aren’t treated the same way. Because chapter 7 bankruptcy completely eliminates the debts you include when you file, it can stay on your credit report for up to 10 years.
While chapter 13 bankruptcy is also not ideal from a credit standpoint, its setup is viewed more favorably because you are still paying off at least some of your debt, and it will remain on your credit report for up to seven years.
Shortly after your bankruptcy is discharged by the courtmeaning you no longer owe the debts you’ve included in your filingit may be difficult to get approved for credit, especially with favorable terms. There are some lenders, however, who specifically work with people who have gone through bankruptcy or other difficult credit events, so your options aren’t completely gone.
Also, the credit scoring models favor new information over old information. So with positive credit habits post-bankruptcy, your credit score can recover over time, even while the bankruptcy is still on your credit report.
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How Many Times Can You File Bankruptcy In Texas
Can you file bankruptcy more than once in Texas?
The Bankruptcy Courts set no limit on how many times you can file for bankruptcy in Texas, understanding that the program was designed by our federal government to provide people struggling with their debts a fresh start. However, the courts do apply a greater degree of scrutiny to returning filers when it comes to granting discharges of debts.