Q: What is a liquidation bankruptcy? Will I lose everything I own?
A: Chapter 7 bankruptcy is referred to as a liquidation bankruptcy. The idea is that the local Chapter 7 trustee will liquidate all of your NON-EXEMPT assets and provide that money to the creditors in accordance with the law. Once the process is complete (usually 3-4 months), your debts are discharged and your case is closed.
You will not lose everything you own. A skilled bankruptcy attorney will apply statutory exemptions to protect most of your property from the trustee. In fact, the vast majority of Chapter 7 bankruptcies are NO-ASSET Chapter 7s, where you would not lose any property at all.
A skilled bankruptcy lawyer will be able to tell you at a free initial consultation whether you will lose any property by filing a Chapter 7 personal bankruptcy. If you stand to lose an asset with which you are not willing to part, then you should consider a Chapter 13 bankruptcy (see below).
Q: Why would I file for Chapter 13 bankruptcy if I have to repay all of my debt?
A: The simple answer is that you may not qualify for a Chapter 7 (see below) or you may not be willing to lose an asset that would be liquidated in a Chapter 7 (see above).
Chapter 13 debtors must repay a certain amount per month to the Chapter 13 trustee for a period of 36 or 60 months. The amount that you pay per month is not directly related to the amount of debt that you have. The amount is determined by other factors such as the value of your assets, your monthly income, and your monthly expenses. Many Chapter 13 plans result in paying less than 20% of your overall debt.
The other reason you may want to file a Chapter 13 bankruptcy is that you filed a Chapter 7 too recently. You don't have to wait as long to file a Chapter 13 bankruptcy after filing a Chapter 7.
Q: How do I know if I qualify for a Chapter 7 bankruptcy?
A: There are other requirements for filing a Chapter 7 bankruptcy, but the most important one is the income requirement. You must pass the Means Test in order to qualify for a Chapter 7 bankruptcy. Your average household monthly income for the last 6 months must be lower than the median income for a household of your size in your state. In Ohio, the median income for a household of 1 is near $40,000, and the median income for a household of 2 in Ohio is near $51,000. A skilled bankruptcy attorney will be able to evaluate your position with respect to the Means Test at your free initial consultation.
Can I still file a Chapter 13 bankruptcy if I am below the Means Test?
Yes. In fact, if you are below the Means Test, then you only have to pay back to the Chapter 13 Trustee that which you would pay in a Chapter 7 bankruptcy, i.e. the unexempt value of your assets, plus some administrative expenses. Debtors that are below the Means Test in a Chapter 13 bankruptcy often pay around 10% or less of their total debt back over a 36 month period.
Does it cost more to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?
That is something that you must talk with your bankruptcy attorney about. Local jurisdictions have different local customs. In Dayton, Ohio, and Springfield, Ohio, the initial cost of filing a Chapter 13 bankruptcy is often less than the initial cost of filing a Chapter 7 bankruptcy. This is in part because the Chapter 7 bankruptcy attorney fees are all paid up front, and the majority of the Chapter 13 bankruptcy attorney fees are paid to the attorney by the Chapter 13 Trustee from your monthly plan payments.
The filing fee that goes directly to the Bankruptcy Court is $299 for a Chapter 7 bankruptcy and $274 for a Chapter 13 bankruptcy.
Additional resources provided by the author
You may find additional information on the US Courts' website and local bankruptcy attorneys' websites and blogs.
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