Chapter 7 Bankruptcy vs a Chapter 13

November 29, 2011 by The ME Law Firm

A Chapter 7 bankruptcy is when you petition the court to extinguish or discharge your debts. One of the common misconceptions in a chapter 7 is that you do not have to pay your debt, but you get to keep all your “stuff”.  This can and cannot be correct depending on your assets.  In the traditional sense, a chapter 7 bankruptcy allows you to discharge your debt in exchange for giving up property.  There are certain properties that are exempt and the law allows you to keep this property irregardless of the debt situation. In a lot of cases, all of your property will be considered exempt.  The property that is not exempt is then sold and the excess monies is distributed to your creditors.

If the debtor wishes to keep cars and their home, a chapter 7 may not be right for you. This is because this sort of bankruptcy will not allow you to extinguish or discharge the debt and keep the property.  The rights of the mortgage holder and the holder of the car note will not lose their rights. If your income is above the median income of Florida (or the state you are in) then you may be forced to file a chapter 13. This is commonly referred to as the means test (it is a little more complicated than this, but in my effort to keep this simple and clear I will leave it at this).  It is standard if you are in a higher income bracket that you may be required to fill out a means test requirement detailing your income and expenses.  Unless there are extreme circumstances, a debtor may be prevented from filing a chapter 7 if they do not meet the requirements of the means test.

On the other hand, a chapter 13 bankruptcy may fit your needs personally.  In this type, you have to show a “plan”  showcasing how you will pay off your debts over a 3 to 5 year period.  The important distinction between the two chapters is you are able to keep your property and this can be highly sought after for a debtor who may have a car or a boat they would like to keep.  This payment is normally the size of your mortgage and car note payment with a small amount more to cover your other debt.  A chapter 13 may also be able to help a homeowner in need of a loan modification or other relief from their debt of their house.  There may be an income requirement as you will need enough income to cover your necessities and the required payments.

If you would like further information and to find out if either of these chapters are right for you, please call at Myers & Eichelberger (1-888-ME-HELP-YOU) for a free consultation.

Comments are closed.