Chapter 7 & 13 Bankruptcy

Types of Bankruptcy:
Individuals may file a Chapter 7 or a Chapter 13 bankruptcy case. A Chapter 7 bankruptcy case takes less time to complete and is often referred to as ‘straight bankruptcy’. A Chapter 13 bankruptcy, like a Chapter 7 bankruptcy, will eliminate forever your unsecured debts (e.g., medical bills, credit cards debts and personal loans) but it also provides certain benefits and protections that are not available in Chapter 7 but may be needed in a case. In a Chapter 13 case, we put together a payment plan for you that obtains that needed benefit or protection and also eliminates your unsecured debts.

Examples of Chapter 13:
You may be behind in your mortgage or property tax payments or your auto loan payments and be facing a home foreclosure or an auto repossession. Or you may have more equity in a property or an auto (i.e. Its value over the amount owed on it) than you are allowed in a Chapter 7 case. A Chapter 7 bankruptcy cannot stop a foreclosure or auto repossession, and it would require you to give up the property that has too much equity. Chapter 13 can stop such things AND eliminate your credit card and other personal debts,

There are many other situations where it may be preferable for an individual to file a Chapter 13 instead of a Chapter 7 case. Chapter 13 may allow you to discharge or reduce the amount you owe on secured debts such as second mortgages, auto loans, business or equipment loans, while also eliminating your unsecured debts. If you own a business, it will allow you to continue operating your business and use its assets, whereas Chapter 7 bankruptcy is a “liquidation” proceeding.

Other Examples:
A Chapter 13 case can also allow you to set-up your own payment plan to reduce or pay back taxes you owe; or allow you to defer payments on such things as student loans. Chapter 13 may be needed to protect a tax refund or eliminate a judgment lien against your home or other property. Also, if you filed a Chapter 7 bankruptcy within the past eight years, you cannot file another Chapter 7 case, but you may be able to file a Chapter 13 case. Each ease must be examined on the basis of its own particular facts.

There is one instance where you may only be allowed to file a Chapter 13 bankruptcy and not a Chapter 7 bankruptcy, regardless of any needed benefit, and that is where your total household income is more than allowed for a household of your size. If that is your situation, you would not be allowed to file a Chapter 7 Bankruptcy, but be restricted to filing a Chapter 13 bankruptcy. In this case, you would be required to pay back a percentage of what you owe to your unsecured creditors (e.g. Credit cards and personal loans) over a five year period. If your household income is over the limit, we must closely calculate your monthly expenses to see what you must pay to eliminate your debts.

If you are not allowed to file Chapter 7 bankruptcy due to ‘too much’ income, we must also determine if Chapter 13 bankruptcy is the way to go, i.e., does it give you more benefit than other alternatives. In doing so, we must remember that the benefits of bankruptcy are guaranteed by federal law; that cannot be ignored when weighing the pros and cons of other types of financial relief

The Plan:
When we file a Chapter 13 case for you, we include in it a plan wherein you pledge to pay to the Bankruptcy Court, over the course of three to five years, an amount sufficient to adequately stop a foreclosure, repossession or other problem or qualify for a benefit or protection you need and which is not available in Chapter 7. Your Plan also pledges to pay a certain affordable monthly payment (perhaps as little as five cents on the dollar) to your unsecured creditors (e.g., credit cards and personal loans) and which will eliminate these debts in full forever. You will have to go to a Court meeting to review your case.

More things to know if you file a Chapter 13 Case:
When you file a Chapter 13 bankruptcy case, you must also submit a payment plan that the Court must approve. I will put the plan together for you. Generally speaking, there must be some specific reason you are filing a Chapter 13 case, instead of a Chapter 7 case, such as the reasons noted on the first page of this information packet.

Per law, your payment plan must include any payments you make on any motor vehicle loans you have (with some exceptions noted below). Your payment plan would also include a payment on any recent income taxes you may owe, whether you are already on a payment plan on them or not; and include a payment (usually minimal) on any student loans you may have.