What is the difference between a Chapter 7 and a Chapter 13 Bankruptcy?
A Chapter 7 Bankruptcy, also known as a straight bankruptcy, is a liquidation bankruptcy where your unsecured debts (debts not secured by collateral) such as credit cards and medical bills are wiped out. A Chapter 13 Bankruptcy is a reorganization bankruptcy which is designed to reorganize your debts and to create a plan to payoff a portion of those debts at a reasonable and manageable rate. Your income, expenses and types of debt will determine the amount that you pay back as well as your monthly payment amount. You can expect to continue to make Chapter 13 plan payments for 3-5 years depending on the plan.
How do I determine which type of bankruptcy I qualify for?
Your income and household size will determine what type of bankruptcy you may qualify for. To qualifyfor a Chapter 7 Bankruptcy you must fall below the medium household income in your state. The last six months of your income is used to determine whether you qualify for a Chapter 7 or 13 Bankruptcy. Our blog post on Chapter 7 Bankruptcy goes into more detail on income limits.
What are the advantages of a Chapter 13 Bankruptcy?
There are advantages to a Chapter 13 Bankruptcy. A Chapter 13 will allow you to get caught up on your debts, including your mortgage and car loan, and hold on to your assets ie. House, Car etc. If you are behind on your auto loan payments a Chapter 13 can be a powerful protection to you. When you file for Bankruptcy one of the most immediate protections in both Chapter 7 and Chapter 13 is an automatic stay, which means your creditors have to cease collection activities. The automatic stay can stop an impending Car repossession while your Bankruptcy plan is being confirmed. See our post on the Automatic Stay. You may be able to completely restructure the auto loan through your Chapter 13 plan by potentially lowering your interest rate, reducing your monthly payment and even reducing the principal amount owed on the loan (this is known as a cram down).
When will I see relief in a Chapter 13 Bankruptcy?
You will see immediate relief in your Chapter 13 Bankruptcy through the automatic stay which protects you as soon as your bankruptcy petition is filed. The stay allows time to structure and confirm your Chapter 13 plan. You will work closely with your attorney to structure your plan. A bankruptcy Trustee assigned by the court will oversee the proceeding. Once you plan is confirmed you enter the repayment period; you will pay a set amount per month to the Trustee who will then send out payments to your creditors as set forth in the plan. Depending on the structure of your plan you can expect to make payments for a period of 3-5 years. Once you have complied with your Chapter 13 plan and have made all of your payments any remaining dischargeable debt is wiped out and you receive a fresh start. In most Chapter 13 Bankruptcies only a fraction of unsecured debt is paid back, which gives you the same benefits of a straight Chapter 7 Bankruptcy and most importantly allows you to keep your secured assets.
Chapter 13 Bankruptcies are highly technical and it is important that you have an experienced bankruptcy attorney handling your case. Contact us today at 315-255-3368 for a free initial consultation.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.