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Chapter 7 and Chapter 13 Bankruptcy: Know The Right Choice For You
When you’re overburdened with expenses and seek debt relief, filing for bankruptcy is an effective way. The most common options for individuals include Chapter 7 and Chapter 13, while businesses or sole proprietors can opt for Chapter 11. The right option for you comes down to your financial goals and the assets you own.
To better understand the two most common options, let’s mention their differences and who they’re suitable for. For more detailed info, speak to an expert bankruptcy lawyer atAttorneyDebtFighters.
The Purpose of Chapter 7 Vs. Chapter 13
One of the main differences is the purpose of each type. Chapter 7 offers liquidation, while Chapter 13 offers debt reorganization. Ultimately, each comes with its benefits and drawbacks, but they’re both suitable if your creditors have filed a lawsuit against you and you don’t see any way to pay off your debts in the next five years.
Regardless of the bankruptcy petition you file, a major benefit is that it can prevent legal action and collection efforts from your creditors. Similarly, both types are suitable if over 50 percent of your take-home income goes toward your monthly debt payments.
Filing for Chapter 7
Here’s what you can expect when filing for bankruptcy under Chapter 7:
Because Chapter 7 is quicker, most people prefer to opt for it. However, there are certain criteria that you must meet to qualify for a Chapter 7 bankruptcy. If you fail to do so, it’s possible that the court will convert your case into a Chapter 13 bankruptcy instead. The criteria are meant to filter out filers who can pay off some portion of their debt.
To be eligible to file for Chapter 7, you should meet the following criteria:
· Your income should be equal to or below the state’s median. If it’s higher, then the court will assess how much disposable income remains after you pay for food, rent, and other allowed expenses. If you have enough income to pay your unsecured creditors with a repayment plan, the court will dismiss the filing.
· You can’t have filed for a Chapter 7 discharge in the last eight years
· You can’t have filed for a Chapter 13 discharge in the last six years.
· You must not have had a dismissal of Chapter 7 or Chapter 13 bankruptcy cases in the last 180 days for reasons such as violating a court order.
In addition, you can’t file for Chapter 7 if you defrauded creditors. And if you failed to fulfill the credit counseling requirement within 180 days before filing for Chapter 7, you’re deemed ineligible.
Benefits and Drawbacks
A major benefit of filing for Chapter 7 is that it’s the fastest means to get a discharge. If you’re eligible, you can get a discharge within six months. However, it will remain on your credit report for the next ten years after you file a Chapter 7 petition. Other drawbacks include:
· Chapter 7 doesn’t prevent repossession of your house or keep it from going into foreclosure
· In some cases, your trustee has permission to sell non-exempt property
Money that is exempt in a Chapter 7 filing includes your pension, welfare cheques, unemployment compensation, and social security. You can keep certain assets such as necessary motor vehicles, clothing, furniture, appliances, tools, and jewelry that are valued up to a certain amount. For a detailed list of exempt assets, contact an expert bankruptcy lawyer atAttorneyDebtFighters.
In most cases, the filer loses possession of the following items:
· Valuable collections of items such as coins,
· A second property, such as a vacation home,
· Second vehicle
· Expensive instruments and tools not required by the filer’s profession
· Valuable family heirlooms
· Investments such as stocks and bonds, as well as cash
If you’re declaring bankruptcy under Chapter 13, here’s what you should know about the eligibility criteria, benefits, drawbacks, and non-exempt property.
If you’re considering filing for Chapter 13, you should consider the following:
· You should have filed federal and state income tax for four years before filing for bankruptcy.
· You should prove to the court that you have adequate disposable income after removing allowed expenses and secured debts. The repayment plan should pay off some debts in full.
· Your secured and unsecured debts must not exceed $2,750,000 when combined.
If you’re eligible for Chapter 13, you can expect to discharge your debts in about five years, but this depends on your repayment plan.
Benefits and Drawbacks
A major benefit is that you can catch up on debts and retain some of your assets. Moreover, your credit report will show that you filed for Chapter 13 for 7 years after you filed the petition. That being said, the cost of your repayment plan is a drawback that dissuades most filers.
Exempt and Non-Exempt Assets
The exempt assets can vary from state to state but usually include a vehicle you can use to go to work, clothes, furniture, and your retirement account. Nevertheless, you should keep in mind that the exemptions in Chapter 13 differ from those of Chapter 7.
This is because the purpose is to determine how much you have to pay unsecured creditors. Therefore, many of your assets will be exempt from bankruptcy. As for your non-exempt proper – your trustee won’t sell it to pay back your unsecured creditors. Rather, over the course of your repayment plan, you’ll pay the amount equal to your non-exempt property to unsecured creditors.
Speak With a Bankruptcy Attorney to Choose The Right Option
Although understanding the types of bankruptcies can help you determine which one you should file for, it’s best to consult a bankruptcy lawyer as well. They’ll have thorough knowledge and experience regarding the legal process, which allows them to suggest the right type of bankruptcy. Not to mention, they can file a bankruptcy petition on your behalf. This gives you peace of mind and ensures that you don’t have to deal with creditors.