There are two main chapters of bankruptcy cases that most individual consumer debtors file: Chapter 7 and Chapter 13. A Chapter 13 case requires you to make a monthly payment to a trustee for 3 to 5 years to pay your unsecured creditors a percentage of what you owe them. A Chapter 7 case is open for about 4 months and requires no repayment to your unsecured creditors.
Some people will not qualify to file a chapter 7 case because of high income or because they have filed a chapter 7 less than eight years before they want to file another case. Chapter 7 may not be the best option for some people because they have property with significant equity that they don’t want to give up or because they are behind in a mortgage or car payment and they want to keep the house or vehicle. This is very important to know when you file a bankruptcy case. If an attorney tells you that you are only allowed to file a chapter 13 case with a repayment plan, you should always ask why you don’t have the option of filing a chapter 7 case. The attorney may have a very good reason why you cannot file a chapter 7 bankruptcy. It may be because of reasons including, but not limited to:
- You may be behind in your house or car payment and would lose your property if you filed a chapter 7.
- You may have income that is too high to qualify for a chapter 7.
- You may be lucky enough to have some property that you want to keep but you have equity in beyond what can be protected in a chapter 7 case and so you would risk losing that property if you filed a chapter 7.
- It has not been eight years since the last time you filed a chapter 7 case.
- Certain types of debts can be discharged in a chapter 13 case but not in a chapter 7 case.
All of these situations are valid reasons for not filing a chapter 7 case. In many situations, a chapter 13 case can help solve big financial issues that a chapter 7 case cannot. If the attorney you are consulting with does not give you a good, clear reason why you are not able to file a chapter 7 case and you are interested in filing a chapter 7 case, do not file a case until you get advice from another attorney.
There are some attorneys who may not offer both choices and may tell you that you cannot file a chapter 7 case, without giving you a good reason as to why you cannot or would not want to get a discharge under chapter 7. There may be reasons why you decide to file a chapter 13 even though you could file a chapter 7 case, but it should be your decision and not because you are not offered the option of a chapter 7 case by an attorney.
If you are still unsure of the difference between a Chapter 7 and a Chapter 13 bankruptcy take a look at the infographic below:
|
Chapter 7 Bankruptcy |
Chapter 13 Bankruptcy |
|
Most unsecured debts are forgiven |
Restructure debts into a payment plan over three to five years. |
|
Takes between three to four months |
Lasts between three to five years depending on your income. |
|
Disposable income must be low enough to pass the Chapter 7 Means Test |
Requires a regular income for the monthly payment that must be made to the trustee. |
|
Trustee can sell nonexempt property. Does not provide a way to catch up on missed payments to avoid foreclosure or repossession |
Allows debtors to keep their property and catch up on missed mortgage, car and non-dischargeable debt payments. |
|
Can temporarily stop foreclosure, but unless you can get current on your mortgage, foreclosure will eventually continue. |
Can stop a foreclosure and you can make up past due mortgage payments through your repayment plan. |
It is likely that your income and/or assets will determine which bankruptcy chapter you should file. For example, if you have too much income you will not be able to file a chapter 7 bankruptcy; or if you have property you want to protect you may need to file a Chapter 13 case. Though income might determine which case you can file, it is still important to discuss all of your options during an initial consultation with an attorney. At Main Street Law Offices we understand that filing for bankruptcy can be a stressful experience which is why we offer a free initial consultation where you can sit down with an attorney to evaluate your case specifically and find the best solution. After assessing your assets, liabilities, and overall financial situation, your bankruptcy attorney will be able to determine which type of personal bankruptcy suits you best.
EDUCATING YOURSELF ON THE PROCESS OF FILING A CASE:
This blog is intended to help give you a better understanding of the options in bankruptcy, but it doesn't cover all of the issues you might encounter. In order to fully understand your particular situation in depth and proceed with filing a case, we suggest you review your financial standing with a knowledgeable bankruptcy attorney as well as educate yourself ahead of time about the bankruptcy process. There is a process involved with filing bankruptcy which includes the following:
-Compile records: During your initial consultation your attorney will review what kind of documentation you will need to provide before being able to file a case. These documents typically include bills, real estate and vehicle information, pay stubs, retirement plans, insurance, etc.
-Take a Credit Counseling Course: Bankruptcy counseling is required. Most counseling agencies offer this service online or over the phone. Once completed you receive a certificate of completion. This must be completed in order to file your case. You will also be required to take a second credit counseling course after you have filed your case. Just like the first credit counseling course, you will need to provide proof of this counseling upon completion.
-Sign and File your Case: Once you have reviewed and signed your bankruptcy petition, schedules, and forms with your lawyer, your lawyer will file your bankruptcy case. Your lawyer will then be able to speak on your behalf. This means no creditors can contact you directly about your debt without authorization from your attorney.
-Attend a 341 Meeting: You will have to attend a meeting that allows the trustee to ensure you have given truthful answers on your bankruptcy petition and that you understand and agree with the bankruptcy papers you have filed.
That is just a brief overview of the process of filing a case. If you are located in Richmond, VA or the Tri-Cities (listed below) and would like to set up a free consultation, give us a call at 804-355-1800 to see how we can best assist you and remember to always discuss all options with your attorney!