Deciding on which bankruptcy chapter is the best for your bankruptcy case will depend on your monthly income and assets, among other things. For example, a substantial amount of income might prevent you from bankruptcy filing under Chapter 7 (liquidation bankruptcy). In case you have any personal property that you would want to keep, you may instead file a petition in bankruptcy under Chapter 13 (reorganization bankruptcy).
Bankruptcy filings enable an individual to repay debts and obtain debt relief. Additionally, when you file for bankruptcy, an automatic stay shall protect against creditor harassment, wage garnishment, and foreclosure. An automatic stay essentially stops collection activities from debt collectors.
Dealing with debt and financial problems is not easy if you will handle it alone. Understanding relevant bankruptcy laws and the bankruptcy process is important to have a successful bankruptcy proceeding. Having a bankruptcy attorney would be beneficial for you to successfully have a fresh start with your finances. Bankruptcy lawyers will assist you on how to file and discuss with you the bankruptcy rules that apply under the different types of bankruptcy.
There are different bankruptcy forms that you can choose from depending on the types of debt that you owe from your creditors. Debts that are dischargeable when you file bankruptcy are unsecured debts, which include medical debt and credit card debt. On the other hand, non-dischargeable debts are secured debts, child support, alimony, certain tax debt, and student loan debt. It is highly recommended that you consult first with a bankruptcy lawyer before you proceed with declaring bankruptcy. Bankruptcy attorneys could also help you prevent any legal issues during the bankruptcy procedure.
In a bankruptcy proceeding, a trustee is assigned to evaluate the bankruptcy case. In Chapter 7, the bankruptcy trustee shall also manage the sales of the nonexempt assets of the debtor and distribute the funds to the creditors. As a result, filing Chapter 7 could be expensive if you own a lot of properties.
This is in contrast to a Chapter 13 case, where you propose a debt repayment plan to the bankruptcy court. The plan shall enable you to retain all your properties while making payments for what is owed, whether in full or partially.
Furthermore, if requirements are met, Chapter 13 can give bankrupt individuals additional protection that is not applicable in Chapter 7. When filing Chapter 13, by keeping up with your delayed payments, you may be able to stop foreclosure and repossession.
These are other scenarios that can show which bankruptcy option would be the best for a specific filer:
Unemployed individuals with few properties
The simplest and most successful way of obtaining debt-relief is filing for bankruptcy under Chapter 7. It is also referred to as a “no asset” bankruptcy chapter.
Jobless homeowners with substantial equity could file under Chapter 7
If a debtor has a large value of property equity, the right bankruptcy option may or may not be Chapter 7. If substantial equity is exempted by the state, then debtors might secure their homes. However, if the state does not protect the equity, debtors may lose their properties. The owner would only be allowed to hold on to the property in Chapter 13 if there is sufficient disposable income to finance the payment plan.
Working homeowners dealing with foreclosure or mortgage delinquency
Filing a petition in bankruptcy under Chapter 13 provides means for you to keep up with due mortgage payments, while also removing a certain amount of dischargeable debt. Debtors may be able to wipe out credit card bills, medical bills, and potentially stop foreclosure. Filing Chapter 7 does not offer debtors a solution to catch up with due payments. Therefore, for filers who want to secure properties, Chapter 7 might not be a good choice.
Qualifications for filing a bankruptcy petition under Chapter 7 and Chapter 13
To be eligible for filing Chapter 7, you should pass the bankruptcy means test. Covering the six months before filing bankruptcy, the means test will compare the monthly income of the debtor and the median income in the state.
If your monthly income does not exceed the median income, you pass the means test. If it is greater than the median income, the second part will take into consideration your living expenses. The difference between the two shall determine your disposable income.
In bankruptcy Chapter 13, you shall negotiate for a debt repayment plan that will allow you to repay your creditor in a period of three to five years. Every month you should have enough income to pay all your debts.
Secure your financial future. Seek legal help and assistance regarding debt management and bankruptcy filings. Talk to us at E. Orum Young Law for a free consultation. Call (318) 450-3192 today.