CHAPTER 7 BANKRUPTCY
What is it?
Chapter 7 bankruptcy is commonly known as Liquidation. This is the bankruptcy option most often pursued by individuals to give them a “fresh start.” Chapter 7 involves the complete liquidation of a debtor’s property to pay creditors and “wipe out” remaining unsecured debts.
How does it work?
A Chapter 7 bankruptcy filing process typically takes about four to six months. Prior to filing for Chapter 7 bankruptcy, a debtor must complete an approved credit counseling education course.
Who qualifies for Chapter 7?
The Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 have made the process for filing bankruptcy for consumers more difficult. Consumers must pass the “means test” to show that a debtor’s debt to income ratio qualifies for Chapter 7 bankruptcy, Chapter 13 bankruptcy or not at all. Also, consideration of recent or prior bankruptcy filings or discharges can affect your ability to qualify for a Chapter 7 bankruptcy.
Advantages to Chapter 7
- No minimum amount of debt required to file; no maximum limit on the amount of debt that can be discharged.
- Unpaid balances due after assets are distributed are discharged.
- You get to keep wages earned and property acquired (except inheritances) after bankruptcy filing date.
- Typically your case is concluded in 3-6 months.
Disadvantages to Chapter 7
Not all debt is discharged under Chapter 7. Mortgage debt, car payments, child support, spousal support, delinquent taxes less than three years old, student loans and any judgments from a court generally survive bankruptcy. Your non-exempt property is sold by the trustee. While you are permitted to keep some assets, other assets are sold by the interim trustee – the person who is appointed by United States Trustee to oversee your bankruptcy – to repay some of your creditors. Only temporarily forestalls your lender’s foreclosure actions against your home. Can only file Chapter 7 once every eight (8) years. It is difficult to withdraw from a Chapter 7 filing.
BANKRUPTCY – CHAPTER 13
What is it?
Chapter 13 bankruptcy is commonly known as Reorganization. This is the bankruptcy provision is most often pursued by those consumers who are unable to qualify for Chapter 7 and who wish to keep their assets. In Chapter 13, the debtor must make monthly payments over three to five years to repay all or some of their debt. Once all payments are made under the repayment plan, the debtor is entitled to a discharge of their debts.
How does it work?
Within 15 days after filing a Chapter 13 petition, the debtor must file a proposed repayment plan. A summary of it is mailed to every creditor. Once the plan is confirmed, the debtor makes payments to the trustee for the benefit of the creditors.
Who qualifies for Chapter 13?
This section of the Bankruptcy Code typically helps qualified individuals who don’t qualify for Chapter 7, qualified individuals who want to retain his/her property, or small proprietary business owners. Only an individual with regular income whose debt is under $1,000,000 ($250,000 unsecured debt; $750,000 secured debts.) A qualified individual must have a regular source of sufficient income to make Chapter 13 plan payments and stay current on secured debt obligations (mortgage) and living expenses.
Advantages to Chapter 13
- You keep your real estate and personal property.
- You have protection against creditor collection efforts, lawsuits and garnishments.
- You have protection against foreclosure of your home.
- You have the opportunity to repay your debts through reduced payments.
Disadvantages of Chapter 13
- Your repayment plan last for years – 36 to 60 months.
- Higher legal fees for filing a Chapter 13.
- If you miss any payments due under your Repayment Plan, your case will be dismissed by the Court.
- You must stay current on your Chapter 13 Plan payments and payments to secured creditors (i.e. mortgage).
- Secured debts (mortgage) must be repaid in full, but Chapter 13 Plan payment allows you to cure the defaults by repaying any arrearages over the life of the Plan.
Is Bankruptcy Right For Me?
Typically speaking, consumers that have the resources or means to avoid Bankruptcy but are in need of Debt Relief will opt to enroll in a Debt Negotiation, Credit Counseling or Debt Management program before filing for Bankruptcy. Some consumers will want to file for Bankruptcy but will not pass the means test and as a result, will enroll in a Debt Relief program to assist with their debts. Other less fortunate consumers who do not have the resources to pay their debts must seriously consider filing for Bankruptcy. If you find yourself struggling with debt, you deserve to know what debt relief options are available to you and your family. Contact Effective Legal Debt Solutions today to receive a free consultation and find out what Debt Relief options may benefit you. Call 866-265-8002 or fill out our online form and a representative will contact you.