Chapter 7 vs. Chapter 13: a comparison

If you are unable to pay your bills and you face mounting debt, you should consider filing for bankruptcy. As a knowledgeable Newburgh bankruptcy attorney, I will discuss your options with you including whether you should file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy, sometimes referred to as a straight bankruptcy, involves selling your “non-exempt” assets to repay your creditors. In contrast, a Chapter 13 bankruptcy will allow you to catch up on past due payments through a monthly payment plan you can afford. While each type of bankruptcy is different, both have the common goal of helping you get out of debt.

Chapter 7 overview

Before you file for Chapter 7 bankruptcy, your Newburgh bankruptcy attorney will first determine whether you are eligible. After 2005, to file for Chapter 7 bankruptcy you must earn less than the median income in your state, or you must satisfy the means test. The means test determines the amount of disposable income a debtor has remaining each month after paying necessary living expenses like rent, transportation costs, and utilities. The less disposable income you have remaining each month, the more likely you are to qualify for Chapter 7 bankruptcy.Once you file for Chapter 7 bankruptcy, here is what happens in a nutshell:

  • Your creditors must stop all collection efforts against you (this is known as the automatic stay).
  • A trustee will be appointed to administer your estate.
  • About a month after filing, the trustee will hold a first meeting of the creditors, which you must attend. The trustee (and rarely, your creditors) will ask you some questions about your property and debts.
  • The trustee will take control of your non-exempt assets, if you have any.
  • You get to keep your exempt property.  Your bankruptcy lawyer will review with you what property is exempt. Many people who file for Chapter 7 bankruptcy have few non-exempt assets and are able to keep virtually everything they own.
  • If you have non-exempt assets, the trustee will liquidate them and distribute the proceeds to your creditors.
  • The bankruptcy court will issue an order discharging the debts you listed in your bankruptcy petition and you will have no further responsibility for paying them.

Chapter 13 overview

If you are not eligible for Chapter 7 bankruptcy, or if you would like to keep non-exempt assets that would be sold in a Chapter 7 bankruptcy, you should consider filing for Chapter 13 bankruptcy. By filing under Chapter 13, you may be able to stop foreclosure on your home or prevent your vehicle from being repossessed because you are willing to repay your debt. However, you will need to repay all that you owe to secured creditors to keep the asset.In a Chapter 13 bankruptcy, you will create a three to five year repayment plan that outlines how you will repay all or a portion of your debts by making monthly payments. The object of a Chapter 13 bankruptcy is to reduce your monthly payments so that they are more affordable or to eliminate some of your debt so that you are able to manage to pay the rest.To be eligible to file for Chapter 13 bankruptcy, you must have regular and reliable income for at least six months prior to filing for bankruptcy. The income can come from any source including a pension, Social Security benefits, or actual monthly income.The procedure for a Chapter 13 bankruptcy is similar to the procedure for a Chapter 7. After you file:

  • The automatic stay goes into effect and your creditors must stop all collection efforts against you.
  • A trustee will be appointed to administer your estate and about a month after filing, will hold a first meeting of the creditors, which you must attend.
  • After the meeting of creditors, the court will schedule a confirmation hearing to confirm your repayment plan.
  • For the duration of your repayment plan, you must make monthly payments to the trustee, who will then distribute the funds to your creditors. Failure to make all monthly payments on time may result in the dismissal of your case without discharging your debts.
  • At the conclusion of your repayment plan, the bankruptcy court will issue a discharge of the debts you listed in your bankruptcy petition.

Our Newburgh bankruptcy lawyers can help

The experienced bankruptcy attorneys can help you determine which chapter is the best choice for your situation. If you would like to arrange for a free consultation, complete the case submission form on this page, email us, or us. We will respond promptly.

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