So Simply Put What Are The Benefits And Drawbacks Of Chapter 7 And Chapter 13 Bankruptcy
A chapter 7 bankruptcy may allow you as the debtor to quickly discharge most of your debt and truly get the fresh financial start you, and your family needs. This sounds good on the surface, but your situation is unique and must be legally treated as such. The drawback of chapter 7 bankruptcy is that the Trustee could sell your non-exempt property and usually does not provide a way to catch up on missed payments or possibly avoid foreclosure or repossession.
A chapter 13 bankruptcy will, however, allow you to keep your property and possibly catch up on missed mortgage, car, and non-dischargeable priority debt payments. With that in mind, you still must make monthly payments to the trustee for three to five years and may have to pay back a portion of general unsecured debts.
Its never a simple choice to make, and you need the professional guidance that your family bankruptcy lawyer can provide!
How Much Of My Debt Will I Have To Repay If I File For Chapter 13 Bankruptcy
It will depend on the types of debt you have. Here are the general guidelines:
- Bankruptcy fees. You must pay 100% of the;bankruptcy;filing fees, trustee commissions, and your attorneys fees.
- Priority debts.;You must pay 100% of the following obligations: child and spousal support arrears owed to the parent or child; most tax debts except those first due at least three years before your bankruptcy filing; wages, salaries, or commissions you owe to employees up to a specific limit; and contributions owed to an employee benefit fund.
- Secured debts.;If you want to keep your home, car, or other secured property, you will have to pay 100% of the arrearage amount, 100% of debt secured by a tax lien, and remain current on the monthly payment.
- Unsecured nonpriority debts.;You will pay anywhere between 0% and 100% of the amount you owe, depending on your disposable income, the length of your repayment plan, and the total value of your nonexempt property (you will have to pay for it.
Nonsupport Debts Owed In A Divorce Property Settlement Or Agreement
If a creditor objects, then these debts will not be discharged unless you demonstrate that:
Any remaining balance at the end of Chapter 13 bankruptcy will be erased.
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It Can Help You Repay Your Debt
Chapter 13 can also provide a more convenient and cost-effective way to repay your debt. Through Chapter 13, youll make a plan to repay all or some of your debts. You can make one consolidated monthly payment toward your debts based on your repayment plan. This lump payment will then be distributed to your creditors. Your monthly payments may also be reduced for certain types of debts, so you can repay them over the course of your three- to five-year plan.
Differences Between Chapters 7 11 12 & 13
What is the difference between filing bankruptcy under Chapter 7, under Chapter 13, and under Chapter 11 of the Bankruptcy Code?
This is a liquidation bankruptcy, sometimes called straight bankruptcy. The principle advantage is that the debtor comes out without any future obligations on his discharged debts. However, bankruptcy does not wipe out most mortgages or liens. If a debtor wants to keep an item which is security for a loan, he/she must continue these payments. If the debtor wants to discharge that car loan, then he/she must surrender the car to the creditor that holds the lien.
The fact that the term liquidation is used in describing a chapter 7 can be misleading.; A chapter 7 bankruptcy trustee can only liquidate nonexempt assets owned by the debtor.; In Mississippi, most consumer chapter 7 filings are what we call no asset cases because the debtor owns no nonexempt assets or such a small amount of nonexempt assets that liquidating those assets would not provide a meaningful distribution to creditors.; For an understanding of what is exempt and not exempt, see Exemptions in Mississippi.
Another type of debt that is not discharged is debt that is reaffirmed by the person filing the bankruptcy.; Reaffirm and reaffirmation agreement are terms that are described in the Bankruptcy Glossary.
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Chapter 11 And Chapter 12
Chapter 11 and Chapter 12 are similar to Chapter 13 repayment bankruptcy but designed for specific debtors.
Chapter 11 bankruptcy is another form of reorganization bankruptcy that is most often used by large businesses and corporations. Individuals can use Chapter 11 too, but it rarely makes sense for them to do so.
Chapter 12 bankruptcy is designed for farmers and fishermen. Chapter 12 repayment plans can be more flexible in Chapter 13. In addition, Chapter 12 has higher debt limits and more options for lien stripping and cramdowns on unsecured portions of secured loans.
Should You File An Individual Or Joint Bankruptcy
If you are married, you can choose to file for bankruptcy jointly with your spouse or individually. In general, filing for bankruptcy together makes sense if you have a lot of joint debts and your state allows you to double your bankruptcy exemptions in a joint filing.
However, individual bankruptcy might be in your best interest if:
- only one spouse has debt
- one spouse has nonexempt separate property that may be at risk in bankruptcy , or
- your state doesn’t allow married couples to double their exemptions in a joint case.
It Can Stop Debt Collections And The Foreclosure Process
If youre a struggling homeowner, Chapter 13 could be the help youre looking for. Filing Chapter 13 can stop the foreclosure process and give you a chance to catch up on your past-due mortgage payments. And if you have debts in collections, any debts discharged during Chapter 13 means your creditors can no longer take any action to try to collect the money from you.
Which Is Better: Chapter 7 Or Chapter 13
Which form of bankruptcy is best for you depends on your financial situation and goals.
To determine whether Chapter 7 or Chapter 13 bankruptcy is best for you, consult with a bankruptcy attorney. Youll want to ensure that your problem debts can be handled by bankruptcy and that you’re in a position to make the most of the fresh start that bankruptcy offers.
Most consumers opt for Chapter 7 bankruptcy, which is faster and cheaper than Chapter 13. The vast majority of filers qualify for Chapter 7 after taking the means test, which analyzes income, expenses and family size to determine eligibility. Chapter 7 bankruptcy discharges, or erases, eligible debts such as credit card bills, medical debt and personal loans. But other debts, like student loans and taxes, typically arent eligible. And Chapter 7 doesnt offer a route to get caught up on secured loan payments, like a mortgage or auto loan, and it doesnt protect those assets from foreclosure or repossession.
In some instances, a bankruptcy trustee an administrator who works with the bankruptcy courts to represent the debtor’s estate may sell nonexempt items, meaning belongings that are not protected during bankruptcy. Nonexempt items vary according to state law.
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Chapter 7 Vs Personal Bankruptcy
When a person finds themselves in deep financial trouble in the United States they may file personal bankruptcy under Chapter 7, Title 11 of the United States Code. ;Overtime this has simply come to be known as Chapter 7 bankruptcy.
In Canada it is simply called filing for bankruptcy.; The law is known as the Bankruptcy and Insolvency Act of Canada, or BIA for short, but the only people that refer to the law are professionals working in this area.
What Are The Eligibility Rules For Bankruptcy In Tennessee
The main difference regarding this decision and ineligibility simply comes down to your family income. Chapter 7 requires you to have either a below-median level income for Tennessee or to pass a means test. This information will allow the courts to determine whether you can reasonably be expected to be able to repay your debts with your disposable income .
These calculations, rules, exemptions, etc. can be legally challenging, but with professional help filing bankruptcy can relieve you, and your family, of the monumental stress that comes with drowning in debt.
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Chapter 7 Vs Chapter 13
When deciding between Chapter 7 vs. Chapter 13 bankruptcy, itâs important to consider:
the types of debt you have ,
if any of your personal property would be considered a nonexempt asset,
if your regular monthly income is enough to cover your living expenses, and
the difference between Chapter 7 and Chapter 13 on your credit report
Bankruptcy can be a powerful poverty fighting tool and help thousands of families get back on their feet every month. If youâre facing wage garnishment, know the Bankruptcy Codeâs âautomatic stayâ protects you from any future garnishment as soon as your case is filed. If youâre not sure whether bankruptcy is right for you, keep doing what youâre doing and research. You may even consider signing up for a free credit counseling session to learn more.
Donât be discouraged – or embarrassed – by the idea of filing bankruptcy. If COVID-19 and its impact on everyone in the United States and around the world has shown us anything, it’s that life happens. Bankruptcy laws exist to give you a fresh start. Thereâs no shame in using this legal tool, just like Walt Disney, Abraham Lincoln, and Henry Ford did when they needed help.
Filing Chapter 7? Upsolve may be able to help…
Why Would Someone Choose Chapter 13 Over Chapter 7
First, under Chapter 13, the list of debts eligible for discharge is more expansive than under Chapter 7. This includes debts arising from willful and malicious injury to property and debts from divorce property settlements.
Retired bankruptcy court attorney adviser Shaun K. Stuart has some other possible explanations. Stuart assisted with the St. Louis Feds Page One Economics essay, Bankruptcy: When All Else Fails, published in April 2018.
Stuart noted that:
- Chapter 13 allows you to reschedule certain debts to be spread out over a longer period of time, which could lead to smaller, more manageable payments.
- If you are behind on your mortgage, you can keep your home and prevent foreclosure, as long as you keep making payments.;
- Furthermore, you have more time to pay back debts that cant be discharged under Chapter 7 .
- Chapter 13 can also protect third parties who are liable with the debtor on consumer debts. For example, if a payment plan is completed, co-signers are protected from creditor action.
- You can assign debts with co-debtors to different payment percentages and creditor classes than debts incurred by yourself.;
Lastly, Stuart said, you can pay attorney fees through the Chapter 13 plan, and file a Chapter 13 more than once if needed.
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What Is The Difference Between A Chapter 13 Bankruptcy And A Chapter 7 Bankruptcy
For some foundational information about the Chapter 7 bankruptcy process, you can check out our article, The Chapter 7 Bankruptcy Process Explained.
A Chapter 7 bankruptcy completely wipes out all of the debtorâs dischargeable debts while a Chapter 13 bankruptcy provides for the payment of some or all of the debtorâs debts over the course of 3 to 5 years. If, based on the debtorâs income, the debtor will not be able to pay off the full amount of the debts during the allotted time period in a Chapter 13 payment plan, the plan may provide for payment of a portion of the debts, with the remainder of the debt being discharged at the conclusion of the payment plan.
In both a Chapter 13 bankruptcy and a Chapter 7 bankruptcy, an âautomatic stayâ on collection of debts prevents creditors from taking any collection action while the case is ongoing. In the context of Chapter 13 bankruptcies, this means that creditors cannot take action against the debtor for the duration of the 3 to 5 year payment plan so long as the debtor continues to make payments according to the plan.
In a Chapter 7 bankruptcy, the debtorâs assets that are not exempt from bankruptcy liquidation are collected by the trustee and distributed to the debtorâs creditors in order to satisfy the debtorâs debts. In a Chapter 13 bankruptcy, the debtor is permitted to keep his or her assets and, instead, his or her income over the course of the plan is used to satisfy the debts.
What Is A Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a reorganization bankruptcy. Unlike Chapter 7, this type of bankruptcy enables you to keep some of your assets.
When you file for a Chapter 13 bankruptcy, a court will put together a repayment plan to clear your debts. The amount youll have to pay is contingent on how much debt you have, your income, and the value of your property.
Chapter 13 bankruptcy requires the appointment of a trustee and a stable income. People typically opt for Chapter 13 to prevent liquidating all of their assets.
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What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy
If you do ultimately decide to file, one of the first big decisions you’ll make is whether to file Chapter 7 or Chapter 13 bankruptcy. These chapter names refer to sections of the U.S. Bankruptcy Code where it’s outlined how, exactly, your debt is taken care of in each process. The choice to file one or the other determines whether you’ll be put on a debt repayment plan or if your debts will be settled with the property you own. If you find yourself at a crossroads, start here to get a grasp on what’s ahead.
You Will Keep Future Income
In general, the property you acquire or will acquire after filing for Chapter 7 is not included in the bankruptcy estate.
These forms of property acquired within 180 days after filing for Chapter 7 will become part of the bankruptcy estate:
- Inherited property
- Proceeds from a life insurance policy
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Chapter 7 Vs Chapter 13 Bankruptcy: What Is The Difference
There are two main paths to bankruptcy debt relief for individuals and their families: Chapter 7 and Chapter 13. Both paths provide comprehensive debt relief. Both paths lead to the elimination of debt, and will stop repossession attempts, foreclosure actions, debt collector harassment, and wage garnishments. Whichever path you choose, youll get a fresh financial start.
But if youre not familiar with bankruptcy law, you may not know which path is right for you.
Recent Trends In Chapter 7 And Chapter 13 Filings
Historically, Chapter 7 filings have occupied a larger percentage of total nonbusiness bankruptcy filings than Chapter 13. U.S. Courts data show that between 2005 and 2017, approximately 12.8 million consumer bankruptcy petitions were filed in federal courts. Of these, 68% were Chapter 7, while only 32% were Chapter 13.
Annual bankruptcy filings increased during the 2007-09 recession, reaching their highest point in 2010.
Since 2010, Chapter 7 filings as a percentage of total filings have decreased, while Chapter 13 filings have risen as a percentage of total filings. Interestingly, Southern states have a higher concentration of Chapter 13 bankruptcy filings per thousand than the rest of the nation. However, Chapter 7 still remains more common nationwide.
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How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. §;521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. §;302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.