The majority of bankruptcy cases that are filed in the United States generally fall within the realm of Chapter 7 or Chapter 13 bankruptcy. Whether you need a Chapter 7 or Chapter 13 Bankruptcy case depends on several factors like your debts, assets, income and financial goals for the future. This article will provide a quick summary about both Chapter 7 and Chapter 13 bankruptcy to better inform you of the differences. We recommend discussing your options with an experienced bankruptcy attorney to ultimately decide which route to take.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is a liquidation bankruptcy that is designed specifically to knock out unsecured debts like credit cards, medical bills, and most personal and payday loans. In order to qualify for a typical consumer Chapter 7 bankruptcy in the United States, you must pass a “means test” which takes into account your household income. In most situations, you will also need to show that you have no disposable income to repay your creditors. If your income is too high to qualify for a Chapter 7, you may want to consider Chapter 13 bankruptcy, which we’ll discuss shortly.
Once you’ve filed for Chapter 7 bankruptcy, a state appointed Chapter 7 trustee will be assigned to administer your case. It’s the Chapter 7 trustee’s job to review your paperwork and supporting documents and to sell your non-exempt property (if any) in order to pay back your creditors as much as possible. However, if you don’t currently have any nonexempt assets, your creditors won’t receive any payment. In fact, most Chapter 7s in our filing district are “no asset” cases, meaning the trustee doesn’t find nonexempt assets to sell. Most Chapter 7s get discharged within three to five months after filing. If there are no nonexempt assets, the debtor does not need to give up any assets or pay back anything to unsecured creditors. Rather, upon receiving discharge, the dischargeable unsecured debt is wiped away.
A common misconception associated with Chapter 7 bankruptcy is that one cannot keep any assets if filing a Chapter 7. Most people are able to keep their cars, house, pension fund, furniture, jewelry, and other assets of value, which an experienced bankruptcy attorney can protect through state exemptions. Another misconception is that if one has income that’s too high, that’s an automatic disqualification from a Chapter 7. Certain situations allow for Chapter 7 eligibility despite high income. For example, if a debtor is deemed to have mostly “nonconsumer” debt such as business debt or medical debt, he or she may qualify for a Chapter 7 without having to pass the means test. This is why it’s crucial to discuss all alternatives with an experienced bankruptcy attorney.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed to help debtors reorganize on their debts through a three to five year repayment plan. If you’re able to pay back at least a portion of the debts that you owe, Chapter 13 bankruptcy may be an option. If a debtor’s income is too high to qualify for a Chapter 7, a Chapter 13 may provide some relief.
Chapter 13 has certain advantages over a chapter 7, especially for homeowners who have fallen behind on their mortgage and are facing foreclosure proceedings. A common scenario for Chapter 13s involves debtors who fell behind on their mortgage. Filing a Chapter 13 will often help debtors save their home by stopping foreclosure proceedings and allowing debtors to repay their mortgage arrears through a Chapter 13 plan. Similarly, if debtors have fallen behind on their car payments, Chapter 13 will enable them to catch up and keep their car. Assets are not liquidated in a Chapter 13. You’ll get to keep all of your property, including nonexempt assets. However, you may have to pay a portion of your unsecured debt back. The amount you pay is highly individualized based on your budget and disposable income. With an experienced bankruptcy attorney by your side, you can often get a low percentage Chapter 13 payment plan confirmed. Chapter 13 is also a good option if you owe income or property taxes or alimony and child support, as it will enable you to repay these non-dischargeable debts over several years while still allowing you to discharge your dischargeable unsecured debts.
If you or any of your loved ones are currently considering filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, contact the law offices of Eryk Escobar today. We offer consultations free of charge. Your case will be personally handled by an experienced, caring attorney from start to finish. We have offices throughout Southern California for your convenience. We can meet you at our offices in Orange County (Irvine) or Los Angeles County (Glendale or Van Nuys in the San Fernando Valley). We can meet you during weekends, early mornings, or late evenings if typical office hours don’t work for you. If we don’t have an office near you, we can meet you at your home or a local coffee shop if you prefer. We look forward to getting you back on your feet as quickly as possible. Contact us at (818) 918-9660