If you are struggling with debt considering bankruptcy, you may be wondering about your options. After all, lots of terms are floating around- but which applies to your situation? Although it may seem overwhelming, there are basically two types of bankruptcy that you can consider for filing – Chapter 7 or Chapter 13.
Understandably, most people do not understand the difference between these two options, but that is why a bankruptcy attorney can be a great asset. If you’re not familiar with the differences between these two debt-relief options, read below – but don’t hesitate to call if we can answer any further questions.
Did You Know? Chapter 7 and Chapter 13 bankruptcy is typically for personal debt. Small businesses may file Chapter 11.
Chapter 7 Defined
Chapter 7 is a liquidation bankruptcy that eliminates most general unsecured debts. Examples of unsecured debt include credit cards, personal debts, and medical bills. These debts are typically liquidated without the need to pay them back. To qualify for this type of filing, an individual must meet income requirements. If someone looking to file bankruptcy has too much income or too many assets, Chapter 13 bankruptcy (discussed below) may be a necessary option.
Filing Chapter 7 immediately triggers an “automatic stay” order, which prevents creditors from continuing collection efforts against you. A bankruptcy trustee will also be appointed to administer the case. The trustee’s job is to review all bankruptcy papers and documents and sell non-exempt property to reimburse creditors. If an individual does not own any non-exempt assets, the creditors will not be paid back.
What is Non-Exempt Property?
Non-exempt property is any personal assets that are not exempt from the bankruptcy process. These assets can typically be liquidated in a Chapter 7 bankruptcy.
Chapter 7 bankruptcy is a good option for low-income debtors with few assets. It may also be appropriate for those whose discharged debt exceeds the value of the property sold.
Chapter 13 is a reorganization bankruptcy. It is best for debtors with a steady income who have enough residual income to pay back at least some of their debts via a repayment plan. Most filers who choose Chapter 13 earn too much money to qualify for Chapter 7. Many people choose to file for Chapter 13 instead due to the available benefits absent in Chapter 7 bankruptcy filing. For instance, in Chapter 13, you are given the ability to catch up on back mortgage payments or pay off liens on the home, rather than having to sell the home.
In Chapter 13 bankruptcy, the filer retains their property, including non-exempt assets. They are required to pay creditors an amount equal to the value of the non-exempt property. Either all or a portion of debts are paid via a repayment plan, which is structured based on income, expenses, and type of debt. Chapter 13 also covers nondischargeable debt such as alimony and child support, allowing them to be paid over a set period.
If you don’t qualify for Chapter 7 but require debt relief, Chapter 13 bankruptcy may be a viable option that allows you to keep your home and car.
If you are looking for a Sarasota bankruptcy attorney, call Richard Ellis. We will review the details of your specific situation, advise you on your best course of action, and be with you every step of the way. We understand that being in debt can be difficult – let us help you find relief.