What Are The Differences Between Chapter 7 And Chapter 13 Bankruptcy?
Chapter 7 is what we call the liquidation version of bankruptcy, which basically means when you file the bankruptcy paperwork, your debts are just wiped out. In exchange for that benefit, you may be limited on the stuff you can start over with. With Chapter 13, also called the Reorganization, you can keep the items that you have, but you are committed to a payment plan that lasts from 3 to 5 years.
What Are The Requirements Needed To File A Chapter 7 Or A Chapter 13 Bankruptcy?
For Chapter 7, there is a means test, which typically means that if the individual makes above a certain amount of money, they may not qualify. The other consideration for Chapter 7 is that in many instances, you’re limited on the amount of stuff that you can keep. With Chapter 13, the primary requirement is just to have consistent income.
What Kinds Of Debt Are Discharged In Chapter 7 Or Chapter 13 Bankruptcy?
With Chapter 7, most types of debts are discharged. Normally, we think about Chapter 7 discharging unsecured debts, like credit cards and medical bills, but it also discharges secured debts like mortgages and vehicles. However, if a bankruptcy filer wants to keep their home, or the vehicle that the loan’s associated with, then sometimes they have to make arrangements with those lenders. In contrast, there are certain debts that are carved out of Chapter 7 discharge, like student loans, domestic support obligations, and most taxes. Chapter 13 isn’t significantly different in terms of the debts that are or are not discharged; it’s just that a lot of times they are addressed differently, so the debts that otherwise would not be discharged are paid off through the chapter 13 payment plan.
There are some subtle differences when it comes to things like domestic support obligations that are dischargeable in a Chapter 13, but are not discharged in Chapter 7.
What Kinds Of Debt Cannot Be Discharged In A Chapter 7 Or A Chapter 13 Bankruptcy?
There are a number of debts that are considered non-dischargeable. Often, if a debt is owed to the government, things like taxes or if you have an obligation to pay the government as a result of the criminal restitution, that’s typically going to be non-dischargeable. Debts related to domestic support obligations, things like spousal support or child support, or debts incurred in fraud are also non-dischargeable. Student loans are non-dischargeable, and those are the big ones.
What Can I Keep In a Chapter 7 As Well As A Chapter 13 Bankruptcy?
As a trade-off for the benefit that a bankruptcy filer gets in Chapter 7 of wiping out all their debts, the bankruptcy filer may have to give up certain property that is above the basics. The list of that property, which we call “exempt property,” comes from state law. In the state of Florida, you can typically hold on to your primary residence, retirement accounts, things like 401(k)s and IRAs, and a basic amount of household belongings and household furnishings.
By contrast, in Chapter 13, you can hold on to virtually anything. However, the items that you keep may impact the amount of your payments into the Chapter 13 plan.
How Do I Know Which Type Of Bankruptcy Is Right For Me?
Our firm will complete a comprehensive analysis in evaluating which chapter bankruptcy appears more appropriate. Usually we are looking at income, expenses, assets, and debts. For some people, they are forced to file only one chapter or another. So for example, if they make too much money, then they may not even qualify for a Chapter 7. In other instances, a potential filer might be eligible for both chapters, but there might be a specific benefit that would direct us more towards one chapter or the other. For example, Chapter 7 doesn’t offer any tools to help someone who is behind on their mortgage get caught back up, whereas Chapter 13 has several tools that allows for those opportunities. Sometimes, Chapter 13 allows the bankruptcy filer a certain amount of creativity, to where we may even be able to get rid of secondary mortgages, which is called lien stripping. We evaluate someone’s entire financial picture to help our clients decide which type of bankruptcy is right for them.
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