Chapter 7 Vs. Chapter 13
Filing for bankruptcy? Did you know there are two different types of bankruptcy you can file for? There are many differences in these two different ways to file bankruptcy.
Chapter 7Known as the Liquidation Bankruptcy filing a Chapter 7 allows for an individual to discharge all of their unsecured debts. What kind of debts are considered unsecured? A Chapter 7 usually discharges most types of consumer and household debts. These are debts such as credit card debt, medical debts, auto loans, and mortgage debt. Thee are only some non-dischargeable debts such as student loans, child support payments, and certain types of taxes that are not covered by Chapter 7 bankruptcy.
Not everyone who qualifies for a Chapter 7 bankruptcy should file for bankruptcy. Eligibility for Chapter 7 bankruptcy is determined by a "means test." The means test was developed to determine if a candidate meets the basic requirements for a Chapter 7 bankruptcy. An individuals income is is compared to the median income in that state. almost everyone who is below their state's median income can qualify for a Chapter 7. If you're income is not below the median, this does not mean that you can't file a Chapter 7. An attorney can help determine if you qualify for a Chapter 7, although for high-income individuals this is more difficult.
Why not get relief from all the harassment by creditors? File a chapter 7 and an order for relief or an automatic stay goes into effect. This relieves individuals from those emotionally taxing and other methods of collection that the creditors use.
Chapter 13Reorganization bankruptcy or Chapter 13 bankruptcy is usually referred to as a Wage Earner's Plan. Chapter 13 bankruptcy consolidates your debts into one monthly payment. This payment plan is set up to last for 3 to 5 years or the life of the bankruptcy. Unlike Chapter 7 the debts are not "written off" an individual must pay back the debts, however normally the individual only pays 10 cents to the dollar. Under Chapter 13 bankruptcy a trustee is placed in charge of making the repayment plan and saving the individual from the harassment of creditors. The creditors are barred from directly asking an individual for payment unless they receive a legally-obtained court order.
How do you qualify for a Chapter 13? According to the U.S. bankruptcy code, a person can only file for bankruptcy if he or she has received counseling from an accredited bankruptcy counseling agency within the previous 180 days, or a trustee determines that there are no qualified agencies available to the applicant. There are many qualifications that an attorney can help an individual determine if they are eligible to file a Chapter 13 bankruptcy and make sure that it's approval will not be delayed or endangered in any way.