Understanding Different Consumer Bankruptcy Types

Table Of Contents

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a liquidation bankruptcy for individuals. Chapter 7 bankruptcy eliminates most unsecured debts. Chapter 7 bankruptcy involves a bankruptcy trustee. The bankruptcy trustee sells non-exempt assets. The bankruptcy trustee distributes proceeds to creditors. Chapter 7 bankruptcy provides a fresh financial start. Debtors often keep most personal property. Exemptions protect certain assets from sale. These exemptions vary by jurisdiction. You must pass a means test for Chapter 7 bankruptcy. The means test evaluates your income. Your income must fall below the median income for your household size.
Chapter 7 bankruptcy typically takes four to six months. Creditors receive formal notice of the bankruptcy filing. An automatic stay immediately stops collection efforts. Creditors cannot contact you. Creditors cannot pursue lawsuits. You attend a meeting of creditors. The trustee and creditors ask questions at this meeting. Most debtors do not lose property in Chapter 7. Many debts are dischargeable. Examples include credit card debt and medical bills. Certain debts are non-dischargeable. Student loans and most taxes are non-dischargeable.

Chapter 7 Consumer Bankruptcy Eligibility

Chapter 7 Consumer Bankruptcy Eligibility depends on the means test. The means test compares a debtor’s income to the state median income. A debtor’s household income is below the state median income. If a debtor’s income exceeds the median, the debtor still qualifies. The debtor demonstrates insufficient disposable income. The debtor demonstrates this after allowed expenses. A debtor’s attorney calculates the disposable income. The calculation determines Chapter 7 eligibility.
Chapter 7 eligibility requires no prior Chapter 7 discharge. A debtor does not receive a Chapter 7 discharge within the last eight years. This rule applies to prior bankruptcy filings. A debtor completes a credit counselling course. The debtor completes the course before filing. A debtor completes a financial management course. The debtor completes the course before discharge.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a reorganisation bankruptcy. Chapter 13 bankruptcy allows debtors to repay debts. Debtors repay debts over three to five years. Chapter 13 bankruptcy is suitable for individuals with regular income. Chapter 13 bankruptcy protects assets. You keep all your property in Chapter 13. A repayment plan is central to Chapter 13. The plan outlines monthly payments to creditors. These payments are based on your income and expenses.
Chapter 13 bankruptcy provides several benefits. Chapter 13 bankruptcy stops foreclosures. Chapter 13 bankruptcy stops repossessions. Chapter 13 bankruptcy allows you to catch up on missed payments. These payments are for secured debts. Examples include mortgage arrears and car loan arrears. Chapter 13 bankruptcy also protects co-signers on consumer debts. The co-signer protection is automatic. Chapter 13 bankruptcy offers a path to discharge. Discharge happens after plan completion.

Chapter 13 Consumer Bankruptcy Repayment Plan

Chapter 13 repayment plan details involve a proposed budget. Your budget includes your income and necessary living expenses. The remaining disposable income funds the repayment plan. The plan duration is typically three to five years. Your attorney drafts the repayment plan. The bankruptcy court approves the plan. All creditors must abide by the approved plan. Payments are made to a bankruptcy trustee.
Chapter 13 makes sure fair treatment for creditors. Secured creditors receive full payment for collateral. Unsecured creditors receive a portion of unsecured debt. Disposable income determines the exact percentage. Non-exempt assets also determine the percentage. The repayment plan reduces interest rates on certain debts. The repayment plan reduces principal balances on some secured debts.

What are the Main Differences Between Chapter 7 and Chapter 13?

The main differences between Chapter 7 and Chapter 13 involve liquidation versus reorganisation. Chapter 7 bankruptcy liquidates non-exempt assets. Chapter 7 bankruptcy discharges most unsecured debts quickly. Chapter 13 bankruptcy reorganises debts. Chapter 13 bankruptcy creates a repayment plan. You keep all your assets in Chapter 13. The process length is another key difference. Chapter 7 typically takes a few months. Chapter 13 extends over several years.
Another key difference is eligibility. Chapter 7 has strict income limitations via the means test. Chapter 13 has debt limits. Your secured and unsecured debts must be below certain thresholds. Chapter 7 offers a quick discharge. Chapter 13 offers a discharge upon plan completion. Chapter 7 does not stop foreclosure permanently. Chapter 13 can stop foreclosure. Chapter 13 allows you to cure mortgage defaults.

Which Consumer Bankruptcy Type is Right for My Situation?

The consumer bankruptcy type right for your situation depends on your financial goals. If you have minimal assets and significant unsecured debt, Chapter 7 might be suitable. Chapter 7 offers a faster path to debt relief. If you have a regular income and want to save your home, Chapter 13 is often the better choice. Chapter 13 allows you to catch up on mortgage payments.
Your eligibility for each chapter also determines the right bankruptcy type. Your income level affects Chapter 7 eligibility. Your debt amounts affect Chapter 13 eligibility. A bankruptcy attorney evaluates your specific circumstances. A bankruptcy attorney advises on the most appropriate option. The attorney considers your assets, debts, and income.

FAQS

What is the primary purpose of Chapter 7 bankruptcy?

The primary purpose of Chapter 7 bankruptcy is to eliminate most unsecured debts. Chapter 7 bankruptcy involves the liquidation of non-exempt assets. A bankruptcy trustee handles asset sales.

How long does a Chapter 13 repayment plan typically last?

A Chapter 13 repayment plan typically lasts three to five years. The plan duration depends on your income. The plan duration also depends on the amount of debt. The bankruptcy court approves the plan duration.

Does Chapter 7 bankruptcy stop foreclosure?

Chapter 7 bankruptcy stops foreclosure temporarily. An automatic stay immediately halts collection actions. Chapter 7 bankruptcy does not provide a permanent solution for foreclosure. You must surrender the property or reaffirm the debt.

Can I keep my car in Chapter 13 bankruptcy?

You can keep your car in Chapter 13 bankruptcy. Chapter 13 protects your assets. Your repayment plan includes car loan payments. You must continue making these payments.

Are all debts dischargeable in bankruptcy?

Not all debts are dischargeable in bankruptcy. Student loans are generally non-dischargeable. Most tax debts are non-dischargeable. Child support and alimony are also non-dischargeable.

Related Links