What is Bankruptcy?
Bankruptcy can allow you to discharge some or all of your debt without having to repay the debts incurred before the bankruptcy. You and your family are provided a fresh start free from harassment by creditors.
Should I file Chapter 7 or Chapter 13 Bankruptcy?
Knowing which chapter to use in order to file bankruptcy may be a difficult task. You need to compare and analyze your options under each chapter to know which is right for you. In most cases, filing under Chapter 7 is faster and less expensive than filing under Chapter 13.
Chapter 13, on the other hand, allows a debtor to retain certain assets that would otherwise be liquidated by a chapter 7 trustee, such as a house or car. You should consult with an attorney to guide you in this process.
Chapter 7 Bankruptcy
A “means test” is required in order to determine if a debtor qualifies for Chapter 7 bankruptcy. As with all chapters, you must list all your assets and all your debts on your petition.
Your assets (anything you own) will be separated in two categories: exempt and non-exempt. Exempt assets or property can be kept by the debtor. The non-exempt assets, on the other hand, are liquidated by a bankruptcy trustee who then distributes the proceeds among the owed creditors. Therefore, anything the creditors receive is limited to the value of non-exempt assets a debtor has.
Filing under Chapter 7 allows you to discharge some or all of your debts, allowing you to start over with little or no debt. Certain debts, however, are generally non-dischargeable (i.e. student loans, child support, alimony, and recent federal, state, and local taxes just to name a few).
A Couple of things to keep in mind
If you plan on filing under Chapter 7, you have to wait until eight years after a previous Chapter 7 bankruptcy filing.
The bankruptcy will show on your credit report for ten (10) years after it has been filed.
Chapter 13 Bankruptcy
Chapter 13 allows qualified individuals or small proprietary business owners that are in financial difficulty to make payments to creditors over a 36 – 60 month payment plan while keeping their house and/or car.
In other words, you have the opportunity to catch up on delinquent payments and repay debt. A major advantage to this is that debtors have the ability to save their house from foreclosure. More often than not, you will be making much lower monthly payments than you were before filing under Chapter 13 and in all cases you pay zero interest on the debt. Also, creditors cannot continue or start collection efforts during the duration of the payment plan.
Any debt that can be discharged in a Chapter 7 filing can also be discharged in a Chapter 13. There are other debts that would be non- dischargeable under other chapters that can also be discharged in a Chapter 13.
Once you have completed the 36 – 60 months (depending on the payment plan), you are discharged from all dischargeable unsecured debts, regardless of the amount received by your creditors.
Keep in mind that if you miss any payments during the Chapter 13 payment plan, the court will dismiss your case.