Chapter 7 or Chapter 13?
Chapter 7 and Chapter 13 bankruptcy are the most common types of bankruptcies filed by consumers. Which Chapter is right for a particular debtor depends upon the filer’s circumstances and goals.
Chapter 7 is the most common type of bankruptcy filed, but it is not appropriate for all filers. Sometimes, a Chapter 13 bankruptcy may be the more appropriate choice.
When Chapter 7 Makes Sense
A Chapter 7 bankruptcy is appropriate for consumers who are seeking to discharge unsecured debt, such as credit cards and medical bills, or someone who desires to surrender the collateral securing a debt to the secured lender. If the filer is seeking to retain secured collateral but they are behind on payments, a Chapter 7 is not going to provide the filer with any relief as to the collateral.
One issue with a Chapter 7 bankruptcy is that in order for a consumer to qualify for a Chapter 7 bankruptcy, the filer must pass a means test. The first prong of the test is to compare filer’s income with the median for the same family size within he same county the filer resides. If the filer’s income is over the median income, a test is conducted that compares the filer’s income to the filer’s allowed expenses.
A Chapter 7 filer is only allowed to retain certain assets, which changes depending on the state that the filer resides. Any property that is not protected is liquidated and distributed pro rata to creditors.
When a Chapter 13 Makes Sense
Chapter 13 bankruptcy involves the repayment of debt over the course of three to five years. With this type of bankruptcy, the filer creates a plan for debt repayment, which then must be approved by the court. At the end of the Chapter 13 repayment plan any debt not paid back is discharged. In a Chapter 13, the filer may be able to keep secured collateral even if he/she is behind on the payments when the Chapter 13 case is filed. Thus, for those who are behind on payments for such items, Chapter 13 may be a good choice.
Questions and Help
The Law Offices of Kelley, Fulton & Kaplan can answer any of your questions about Chapter 7 or Chapter 13 bankruptcy cases. The bankruptcy attorneys at the Law Offices of Kelley, Fulton & Kaplan represents both debtors and creditors in all types of bankruptcy proceedings. We can be reached at 561-264-6850.