An Overview of Chapter 13 Bankruptcy
Apr 22, · Since the other types of bankruptcies are specifically geared toward certain individuals or businesses, most people only qualify for Chapter 7 or Chapter Here’s a side-by-side comparison to show how they’re different: The biggest difference between Chapter 7 and Chapter 13 bankruptcy comes down to the person’s assets and income level. Types of Business Bankruptcies. Business bankruptcies typically fall into one of three categories. Two — Chapter 7 and Chapter 13 — are variations on the personal bankruptcy theme. Chapter 11 bankruptcy is generally for businesses that have hit a bad patch and might be able to survive if their operations, along with their debt, can be.
Under the U. Constitutionyou have the ability to relieve all or part of your debts when you can no longer meet your obligations to creditors and lenders. Two major types of personal bankruptcy apply to consumers. Chapter 7 bankruptcy allows debtors to discharge all or part of their debt. In Chapter 13 bankruptcy, debtors repay all or part of their debt based on a payment plan. Under Chapter 7 bankruptcy, you can have all or part of your debts discharged after your liquid assets are used to repay some what are the three types of bankruptcies the debt.
Liquid assets are assets in your possession that can be easily and quickly converted into cash. Common examples include any balance you may have in a checking or savings account. State law dictates what kinds of liquid assets must be used to pay back creditors—these are known as exempt cannot be used to repay and non-exempt must be used to repay assets.
Your non-exempt liquid assets must be turned over to the courts to be distributed among your creditors as partial repayment of the debt you owe. After any non-exempt liquid assets have been distributed to your creditors, any remaining debt is discharged other than those that are non-dischargeable.
You are no longer liable for any debt discharged, and you get to keep your exempt assets. Furthermore, neither creditors nor third-party collectors can attempt to collect these debts from you. To qualify for Chapter 7, you must pass a means test proving that your income is less than the median income for your family size in your state.
In addition to passing a means test, you must receive credit counseling from an approved credit counseling agency. If you fail the means test, you will not be allowed to file Chapter 7. Instead, you can file Chapter Under Chapter 13you repay all or part of your debt through a three-to-five-year repayment plan.
When you make the personal bankruptcy filing, you will how to play bunker shots submit a repayment plan to the court. After submitting the plan, you should begin making payments to the trustee who then pays your creditors.
After a few weeks, there will be a hearing to approve your payment plan. While creditors can object to the payment amounts, the judge has the final say. You are no longer liable for discharged debts. You might choose to file Chapter 13, even if you could file Chapter 7.
Some people choose to do this if they have secured debt, like a car loan, that they want to continue paying so they can keep their car.
Since Chapter 7 bankruptcy requires you to give up certain liquid what is r1 zoning in california, Chapter 13 might be a better option if you want to keep these assets.
Furthermore, if your income is above the median for your family size in your state, you will not be able to file Chapter 7 bankruptcy. According to the U. Also, like Chapter 7, you must receive credit counseling from an approved credit counseling agency. This is the best way to ensure your paperwork is filed completely and accurately. The Balance does not provide tax, investment, or financial services and advice.
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Apr 07, · What Are the Eligibility Rules for Bankruptcy? The main difference in eligibility comes down to your income. Chapter 7 requires you to have either a below-median level income for your state or to pass a means test to determine whether you can reasonably be expected to repay your debts with your disposable income (that's the income you have left over after paying for the essentials). Aug 24, · Under the U.S. Constitution, you have the ability to relieve all or part of your debts when you can no longer meet your obligations to creditors and solarigniters.com major types of personal bankruptcy apply to consumers. Chapter 7 bankruptcy allows . Jul 13, · Chapter 13 bankruptcy eliminates qualified debt through a repayment plan over a three- or five-year period. Chapter 7, Chapter 11 and Chapter 13 bankruptcies all impact your credit, and not all your debts may be wiped out. How Chapter 7 Bankruptcy Works. Chapter 7 is the most common type of bankruptcy and is often referred to as a straight.
Declaring bankruptcy is a major decision that can have long-term negative effects on your finances and credit. It's also a complicated legal process that may require you to do a fair amount of research before deciding your path forward, and if it's even the best option for you.
If you do ultimately decide to file, one of the first big decisions you'll make is whether to file Chapter 7 or Chapter 13 bankruptcy. These chapter names refer to sections of the U.
Bankruptcy Code where it's outlined how, exactly, your debt is taken care of in each process. The choice or necessity to file one or the other determines whether you'll be put on a debt repayment plan or if your debts will be settled with the property you own.
If you find yourself at a crossroads, start here to get a grasp on what's ahead. Bankruptcy is a method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. It should be viewed as a last resort to be considered only when all other potential courses of action to get back on track have been exhausted. Individuals filing for bankruptcy mostly use either Chapter 7 or Chapter The biggest difference between the two is what happens to your property:.
Depending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of state-specific and federal exemptions. With exemptions, whether they be your home equity, retirement accounts or even personal possessions such as jewelry, you receive the allowed exemption amounts, and the rest of the proceeds will be used to pay off debts.
You can read more about potential exemptions , and check out this chart for a quick rundown on the two types:. The main difference in eligibility comes down to your income. Chapter 7 requires you to have either a below-median level income for your state or to pass a means test to determine whether you can reasonably be expected to repay your debts with your disposable income that's the income you have left over after paying for the essentials.
If you don't qualify for Chapter 7, you'll have to look at Chapter 13 bankruptcy instead. This depends on each type of debt involved. With both filings, your unsecured debts ones not backed by collateral, like medical and credit card bills are discharged—meaning you won't have to pay them. With Chapter 7, those types of debts are wiped out with your filing's court approval, which can take a few months. Under Chapter 13, you need to continue making payments on those balances throughout your court-instructed repayment plan; afterwards, the unsecured debts may be discharged.
However, certain debts might not be wiped out by either Chapter 7 or Chapter 13 bankruptcy, including:. Some of those secured loans may be reduced with Chapter 13 bankruptcy to make repayment easier with a "cramdown," in which your court-approved repayment plan decreases the balance you owe.
For instance, you could secure a reduced balance on your car loan based on the vehicle's depreciated value. With Chapter 7, there's a potential to discharge secured debt like car loans, if you give up the property involved in this case, the car. Your credit may not be in tip-top shape by the time you consider filing for bankruptcy, since high balances and missed payments are the top factors affecting your credit score.
Still, the presence of a bankruptcy on your credit report will severely impact your credit scores and creditworthiness the entire time it is on your report. That impact will lessen as time passes, however. Chapter 7 bankruptcy remains on your report for up to 10 years, and Chapter 13 stays there for up to seven years. It's not an ideal credit situation, of course, but you can use the time to manage your debts wisely and make consistent on-time payments. Like with any damage to your creditworthiness, it's possible to rebuild your credit with some focus and patience—along with using the debt relief provided by the bankruptcy to get back on track financially.
How Do I Apply for Bankruptcy? The unfortunate reality of bankruptcy is that it will cost some money—more if you hire legal help, which you probably should more on that below. All filings have to go through U. However, you can ask the court to either waive your fee or let you pay with monthly installments.
You'll also have to take debtor education courses if you file on your own. And that's just the beginning. There's a list of documents you'll need to take care of, as well as the specific repayment proposal you need to submit for Chapter That proposal gets reviewed by a court-appointed trustee, who contacts your creditors before approving your submission. Overall, neither filing is an easy process to handle on your own, and even minor mistakes on your end could be a setback for your case.
So, whether you file for Chapter 7 or Chapter 13 bankruptcy, it's typically a good idea to hire a lawyer to help you petition. A bankruptcy attorney's price depends on the nature and complexity of your filing, with Chapter 13 filings on the pricier end, but the price tag doesn't necessarily mean a lawyer is out of the question for you.
Discuss payment plans with potential attorneys, check out local pro-bono free lawyers and legal aid offices , or use an online tool like Upsolve to cover your bases when it comes to bankruptcy. The Bottom Line Bankruptcy can sound scary, but it might be a necessary step to realign your finances and move forward without debt piling ever higher upon you. No matter what, reach out for help with professional advice and stay informed on your rights and options—your situation is never hopeless.
Before and after you file bankruptcy, it's important to keep a close eye on your credit. Experian's free credit monitoring can alert you to score changes, including improvements that might come in the future once your bankruptcy is in the rear-view mirror. Editorial Policy: The information contained in Ask Experian is for educational purposes only and is not legal advice.
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Get Your Free Report No credit card required. Latest Research. Latest Reviews. Debtors keep all property but must pay unsecured creditors an amount equal to value of nonexempt assets.
Allows removing unsecured junior liens from real property through lien stripping? Allows reducing the principal loan balance on secured debts through a loan cramdown? Allows debtors to keep their property and catch up on missed mortgage, car and nondischargeable priority debt payments. Trustee can sell nonexempt property; does not provide a way to catch up on missed payments to avoid foreclosure or repossession. Must make monthly payments to the trustee for three to five years; may have to pay back a portion of general unsecured debts.