What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is one of two methods in which a consumer files for financial protection under the United States Bankruptcy Code. The other chapter for consumers is called Chapter 13. I’ll distinguish the two chapters shortly. A Chapter 7 is the most commonly used approach by consumer filers. It’s the “Old Fashioned” bankruptcy filing where the bankruptcy court will look to determine whether you have any assets that can be sold to pay off your creditors. Only the assets that are not “exempted” can be sold to satisfy a debtor’s obligation.
Typically, most assets are in fact exempted and no money is collected to pay creditors. When a bankruptcy Petition (case) is filed, Congress has mandated that all actions by creditors must be stayed (stopped). Debt collectors are forbidden to call your home, work or try any type of communication with you. Collection activities such as lawsuits, garnishments, placing of judgment liens, etc., must also stop. This stay gives the debtor some time to catch his breath, to gather and protect financial resources, and fresh financial hope for the future. In time, normally two to three months, all dischargeable debts will be made non-enforceable and thus creditors will be forever barred from taking legal action against the debtor.
The debtor will also see benefits of filing a Chapter 7 bankruptcy. Those benefits include along with the automatic stay; the improvement of the debtor(s)’ credit score; the ability to purchase a federally secured home; obtaining additional credit if desired. A bankruptcy filing will stay on the personal credit report for ten years but creditors understand that means all prior dischargeable debts have been discharged; the current law indicates that once a person receives a discharge then he will not be eligible for another discharge until eight years.
What Requirements Must Be Met To File For Chapter 7 Bankruptcy?
The test to see whether a person qualifies for bankruptcy protection is whether the person is “insolvent;” in other words whether the person owes more than what they own or earn. The new law has instituted a “Means Test” which is a financial determination by the United State Congress to see whether you can file a Chapter 7 or a Chapter 13 if you have the means to pay all your creditors over a specified period.
What Kind Of Debt Typically Is Dischargeable In A Chapter 7 Bankruptcy?
Most consumer debts such as credit cards, medical bills, contracts, personal loans, automobile contract/lease, etc. are dischargeable.
What Debt Is NOT Forgiven In A Chapter 7 Bankruptcy?
Debts that are not dischargeable are:
- Federally guaranteed student loans
- Financial obligations arising out of a domestic support order, i.e. child support, alimony, maintenance, payment to a spouse’s attorney under a support obligation
- Federal Taxes less than two years’ old
- Obligations arising out of criminal or fraudulent responsibility.
What Is A Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy filing is a plan whereby you agree to repay all or a portion of your debts over time, under the supervision of the bankruptcy court. Chapter 13 allows you to keep your property while using your income to repay some or all your debts. In contrast, Chapter 7 allows you to immediately wipe out many debts, but in exchange, you must give up any property that you own that isn’t protected by state of federal exemption laws. A Chapter 13 can be a good solution for people who need to pay off certain debts and who have enough income to meet the Chapter 13 requirements.
In a Chapter 13 you will be able to keep all your property regardless of value, but must pay your unsecured creditors as well, i.e. credit cards, medical debts, and most court judgments. If you are facing a home foreclosure or an automobile repossession, a Chapter 13 filing is a powerful remedy. You can keep these things by proposing a feasible payment plan which includes you missed payments, provided you stay current with your mortgage.
What Requirements Must Be Met To File For Chapter 13 Bankruptcy?
The requirement is the same for a Chapter 7. If you spend more than you have, then you qualify. You will be required to submit a confirmable payment plan which will run up to four years to repay under the bankruptcy court supervision.
What Kind Of Debt Typically Is Dischargeable In A Chapter 13 Bankruptcy?
The debts not dischargeable in a Chapter Seven are not dischargeable in a Chapter 13. The Court however will pay on those debts while you’re in a Chapter 13. If those creditors do not file a timely claim while you are in bankruptcy, then those debts though ordinarily not dischargeable can be.
What Debt Is NOT forgiven In a Chapter 13 Bankruptcy?
No debt is forgiven in a Chapter 13.
What Are The Major Differences Between A Ch. 7 and A Ch. 13 Bankruptcy?
I’ve tried to explain the two and distinguish their applicability as well. A Chapter 7 in short is when you want to get the whole thing over with, and get that fresh start immediately. A Chapter 13 is when you’re in possession of something that is at risk of being foreclosed or repossessed. You can afford to pay it but just need some breathing room.
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