Chapter 7 or Chapter 13 Bankruptcy?
If you are watching your finances and growing more concerned with each passing day, you may want more information on how to go about filing a bankruptcy.
June 12, 2011
If you are watching your finances and growing more concerned with each passing day, you may want more information on how to go about filing a bankruptcy. You may have heard of Chapter 7 and Chapter 13, but might not really understand the difference. This article is designed to help.Chapter 7
Chapter 7 is frequently referred to as providing a "fresh start." It does this by discharging most debts (some obligations can't be discharged, such as student loans.) A debtor is granted exemptions that cover their basic needs for day-to-day living.
Exemptions are somewhat complex, and vary from state to state. In California, there are two sets of exemptions available. A bankruptcy attorney can explain the exemptions that you can use in your particular instance.
Since 2005, to be eligible for a Chapter 7, you must qualify under the "means test," which essentially determines if you make enough money to fund a Chapter 13 plan.
A Chapter 7 typically takes four to five months to complete, and at the end, you are granted a discharge from your debts.
Chapter 13
Chapter 13, often called wage-earner bankruptcy, is used primarily by individual consumers with assets to protect, such as a home. To be eligible to file for Chapter 13 relief, you must have regular income and there are some income limits.
You, with the help of your bankruptcy attorney, create a Chapter 13 plan, which is in essence a budget, where you list all of your expenses and your income. The plan details how much you can afford to pay on your debts.
A Chapter 13 filing is frequently used to protect a home, as it allows a homeowner to maintain their monthly mortgage payments, while paying any arrearages within the plan. This, combined with reducing the stress of payments on unsecured debt, gives the homeowner enough breathing room to recover and get their finances back on track.
The Automatic Stay
Upon filing a Chapter 7 or a Chapter 13, the Bankruptcy Code imposes what is known as an "automatic stay" on all collection activity. This means the collection letters and demanding phone calls from bill collectors must stop.
Before you do anything, contact an experienced bankruptcy attorney; they can review you financial situation and help you choose which chapter to file.
Article provided by Kiet Cothran & Zirrillo
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