Differences Between Chapter 7 And Chapter 13 Bankruptcy
B.H., Hyde Park
Franklin and Hyde Park Chapter 7 and Chapter 13 Bankruptcy Attorneys
An individual or a married couple faced with filing a bankruptcy is generally going to file a Chapter 7 (liquidation) bankruptcy or a Chapter 13 (consumer reorganization) bankruptcy. But how does one know which is the type of bankruptcy that must be filed or which is the most beneficial?
To start off, the main difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy has to do with the payment to creditors. In a Chapter 7 bankruptcy, the debtor is obtaining a discharge of debts without making any payments to creditors, other than secured debts such as mortgages and car loans on property that the debor is retaining. Under a Chapter 13 bankruptcy, the debtor is making monthly plan payments (over a 3-5 year period) to the Chapter 13 Trustee for disbursement to creditors.
Factors That May Determine Type of Bankruptcy
Whether one can file a Chapter 7 Bankruptcy and discharge debts without making any payments to creditors depends on several factors, including:
-Level of income leading up to the filing of the bankruptcy;
-The amount, if any, of any monthly income over expenses;
-Whether debtor is trying to stop a foreclosure;
-The value of various assets.
The Means Test
Individuals with primarily consumer debt must complete an involved and complicated calculation referred to as the Means Test, which takes into consideration the debtor’s income for the six months prior to the bankruptcy filing along with certain allowable expense deductions. A debtor who passes the Means Test is eligible to file a Chapter 7 bankruptcy whereas a debtor who fails the Means Test is required to file a Chapter 13 bankruptcy.
Stopping Foreclosure and Lien Stripping
Some bankruptcy filers who pass the means test and therefore qualify for filing a Chapter 7 bankruptcy might opt for filing a Chapter 13 bankruptcy due to their financial situation. For example, a homeowner trying to save the house from foreclosure can pay the mortgage arrears through the Chapter 13 Plan. In such a case, it may also be possible to remove the second mortgage (lien stripping) through the Chapter 13 Plan, an option that does not exist in a Chapter 7 bankruptcy filing.
One may also choose to file a Chapter 13 if he or she owns property valued above the exemption levels. Depending on the value of the property, the debtor may risk surrendering that property in the Chapter 7 bankruptcy, whereas the property may be retained by making monthly plan payments in a Chapter 13 bankruptcy.
Which type of bankruptcy you are eligible to file and which is most beneficial to you requires an involved and detailed analysis of your financial situation. It is best to consult with an experienced bankruptcy attorney who can answer your questions and explain your options.
Contact a Hyde Park Chapter 7 and Chapter 13 Bankruptcy Attorney for a free consultation.
For more information or to schedule a free initial consultation with an experienced bankruptcy lawyer, please contact Yellin & Hyman today.
Make sure that your debts are fully discharged. Call our Franklin office at 508-570-4581 or our Hyde Park office at 617-910-3664. You can also e-mail us to learn more about our legal services.