Today we are going to talk about chapter 7 versus Chapter 13 bankruptcy. Chapter 7 is known as a straight liquidation bankruptcy and is geared towards unsecured debt such as medical bills, credit cards and other unsecured debt where no assets are is pledged as collateral. You can still file a Chapter 7 is you have secured debts such as a mortgage and car payments so long as you are current on these payments and the equity does not exceed what is allowed under state and federal exemption codes. Chapter 7 normally lasts about 4 months unless there are assets that fall outside the exemption amounts. To qualify for Chapter 7, you must pass one of two tests. First is the median income test. This is set by the county and state and determines what the typical average household income is based on size of your household based on size and location. If you fall within the median income, you can file Chapter 7. However, if you do not, you can look at the means test as a way to still qualify to file Chapter 7. The means test is a series of random questions to determine again if you should qualify for Chapter 7.
If you do not qualify for Chapter 7, you can consider a Chapter 13. If you do qualify for a Chapter 7, the process will take about 4 months, start to finish. The bankruptcy will impact your credit for up to 7 years. But because of the short period of time of the bankruptcy, you can quickly starting rebuilding your credit.
Now, Chapter 13 in the alternative is a good means to address secured debt that you may have fallen behind on such as mortgage payment or the car payment. If you want to keep the asset and get caught up on the payments, the Chapter 13 may be solution for you. What the bankruptcy court is looking for is taking your regular monthly living expenses are compared with the type of debt you have that could be paid back in a bankruptcy. Chapter 13 normally lasts 3 or 5 years depending again on the assets and the use of your available income to pay back a portion of the debt of the allowed time frames. If you do not qualify for chapter 7, a Chapter 13 may still be good for you even if you don’t have secured debt. You may only file a Chapter 7 and received a discharge every 8 years. So if you find yourself in financial difficulty, Chapter 13 may be a good alternative for you.
Each of these bankruptcy chapters has at least one hearing that you must attend, called the 341 hearing. This usually takes place about a month to six weeks out from the filing of the case. This is the time that the trustee can ask you about questions about your bankruptcy petition. Assuming you have completely filled out the petition and made everything crystal clear, this hearing is very brief.
If you have any questions about Chapter 7 or Chapter 13, our office offers free consultations to assist you. Please give our office a call at 704-584-4111.