CHAPTER 7 BANKRUPTCY
Commonly known as liquidation, this is the bankruptcy option often pursued by individuals who are looking for a fresh financial start. A Chapter 7 bankruptcy will liquidate a debtor’s property to pay their creditors, and “wipe out” any unsecured debts that remain after the liquidation process is complete.
This is a 4- to 6-month filing process. In order to begin filing for a Chapter 7 bankruptcy, a debtor must first complete an approved credit counseling education course.
To qualify for a Chapter 7 bankruptcy, a consumer needs to pass what is called a “means test,” as defined by the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. This test is meant to show that a debtor’s debt to income ratio qualifies for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Consideration of any recent or prior bankruptcy filings or discharges will impact your ability to qualify for a Chapter 7 bankruptcy.
- No minimum or maximum limit on debt amount that can be discharged.
- Any unpaid balances after all assets are distributed are liquidated.
- Wages earned, or property acquired after the bankruptcy filing date cannot be included in the assets liquidated. Inheritances are the exception.
- Bankruptcy cases are typically concluded within 3 to 6 months.
Certain debt cannot be discharged under a Chapter 7 bankruptcy. These debts include mortgage debt, car payments, child support, spousal support, any delinquent taxes that are less than three years old, student loans, and court judgments. All non-exempt property is sold by an interim trustee who is appointed by the United States Trustee to oversee your bankruptcy. The money earned from the sale is used to repay your creditors. A Chapter 7 bankruptcy can only temporarily forestall a foreclosure action against your home. A debtor can only file for a Chapter 7 bankruptcy once every eight years. If a debtor decides to withdraw a Chapter 7 bankruptcy filing, this process can be difficult.
BANKRUPTCY – CHAPTER 13
Commonly known as a reorganization, this bankruptcy provision is for debtors who do not qualify for a Chapter 7 bankruptcy and who want to keep their assets. During this process, a debtor makes monthly payments for three to five years which are applied to repayment of all or some of your debt. Once the repayment plan has been completed, the rest of the debts are discharged.
A debtor must file a proposed repayment plan within 15 days of filing their Chapter 13 petition. A summary of that repayment plan is mailed to each creditor. The debtor makes their payments to the trustee, who distributes them to the creditors, after the plan is confirmed.
The bankruptcy code provides an option for debtors who cannot qualify for Chapter 7 bankruptcy, those who wish to retain their property, or for small proprietary business owners. The debtor must have regular income sufficient enough to make the repayment plan payments, as well as keep their secured debt obligations current and cover their living expenses. Additionally, they must have less than a $1,000,000 in debt ($250,000 unsecured debt and $750,000 secured debts).
- Keep your real estate and personal assets.
- Debtor is protected against creditor collection efforts as well as lawsuits and garnishments.
- Your home is protected from foreclosure.
- Reduced payments allow you to repay your debts.
- Your repayment plan can last for years, up to 60 months.
- The legal fees are higher under a Chapter 13 bankruptcy filing.
- You must stay current on your payments, including for secured debts, and if you miss any payments, the court will dismiss your filing.
- All secured debts must be repaid, but if there are any defaults, they can be cured by repaying arrearages as part of the repayment plan.
If you have the resources to avoid bankruptcy, there are other options to address your debt, including Debt Negotiation, Credit Counseling, or Debt Management. Consumers who do not pass the means test may want to consider enrolling in a Debt Relief program to assist in discharging their debts over time. Those without the resources to repay their debts can consider bankruptcy and its impact on their financial future. If you are struggling with debt and not sure what your options are, contact Effective Legal Debt Solutions to receive a free consultation and to determine what options are available based on your circumstances. Call 833-827-3285 or complete our online form and one of our experienced representatives will contact you.