Chapter 13 vs. Chapter 7: Which Bankruptcy is for Me?

There are two types of bankruptcies an individual or married couple can file: a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. The they are both bankruptcies filed in federal court under the United States Bankruptcy Code. The two types of bankruptcy have Two main similarities but significant differences. This article is designed to give you some insight into what type of bankruptcy would be best for you if and whether you are eligible for that type of bankruptcy. However, this article contains the basics, so make sure you contact a lawyer before assuming you qualify for a bankruptcy since each case is different.

A Chapter 13 and a Chapter 7 Bankruptcy are similar in two very important ways. Both types afford you the Court's immediate protection from your creditors. Once you file your case and get your case number, the Court's "Automatic Stay" goes into effect. It is "Automatic" since it is effective as soon as you file the case. The stay arises by operation of federal law and not by any judicial action. It is a "Stay" since your credtiors are "'stayed" or "stopped" from collecting from you. As long as the stay is in effect, creditors are forbidden from calling, writing, garnishing, repossessing, filing or continuing lawsuits, and foreclosing; among other things. The Bankruptcy Clerk provides notice of this to all creditors who were listed in the petition once the case is filed.

In addition to protection from your creditors, you will receive a "Discharge of Debtor" in both a Chapter 7 and Chapter 13 Bankruptcy. A Discharge of Debtor means your legal obligation to pay most debts has been discharged by the Court and you are no longer required to pay them. Once a debt is discharged, the creditor can never again try to collect those debts. There are some debts are typically not dischargeable, like child support, income taxes, or student loans and others. However, most common debts such as medial bills, credit cards, past due utilities, or other unsecured debt will be discharged by the Court at the end of your case.

There are significant differences in Chapter 7 and Chapter 13

A Chapter 7 Bankruptcy is a liquidation. The Court appoints a Trustee who will sell all non-exempt assets and pay that money to your creditors. A Chapter 7 does not require you to pay any money to any creditors whose debt will be discharged.

A Chapter 7 bankruptcy is for those with little or no disposable income that need a fresh start since they are burdened with heavy debt. You are in a Chapter 7 bankruptcy for a short time, sometimes for just a few months. In most cases, you can eliminate your debt completely. You must have little valuable property except for everyday things, such as clothing or household goods or be prepared for the Court to sell assets that have significant value. However, it is a myth that you will always lose a car or house if you file. In a Chapter 7, you CAN keep a house or liened vehicle provided you meet two requirements:  1)  There must be little or no equity in the property and 2)  You must be current on your monthly payments.

To be eligible to file a Chapter Seven bankruptcy, you must meet several criteria:

• You must have lived in the State of Ohio for 90 days
• You must have little or no income left over after paying your necessary living expenses
• You must not have filed bankruptcy within the last Eight years
• You must pass a means test to see if your household income is above or below an average household of your size in your area.
• You must have not filed a previous Chapter 7 in the last Eight years.

A Chapter 13 Bankruptcy is a reorganiation where you can repay your creditors and keep your property.   A Chapter 13 is for those who either suffered a loss of household income that prevented payment of a car or house payment but now are able to make those payments or for those who simply make too much money to qualify for a Chapter 7 Bankruptcy.    In this type of bankruptcy, you make One monthy payment through a Chatper 13 Plan.   This payment is made to the Trustee who will pay your credtiors for you.   The creditors  have no choice but to accept the reduced payment once the plan is confirmed by the Court.   The amount of the plan payment is based on how much you can afford and is usually pennies on the dollar.

A Chapter 13 Bankrutpcy offers of number of advantages that you cannot get in a Chatper 7.   For instance, you can remove subordinate liens (2nd mortgage) so long as no equity attaches to that lien. You can protect a co-signer who would still be liable in a Chatper 7.   You can retain assets of value, such as a car or house with significant equity that would be sold in a Chapter 7.      You can also discharge certain debts that are not dischargable in a Chapter 7.

To qualify for a Chapter 13 Bankruptcy, you must meet the following criteria:

• You must have lived in the State of Ohio for 90 days.
• You must have a consistant and steady stream of income.
• You must have disposable income (money remaining after paying your monthly living expenses).
• You must be prepared to make monthly payments for 36 to 60 months.
• You must not have been discharged in a Chapter 7 in the last Four years or discharged in a Chatper 13 in the last Two years.
• You must have less than $360,475.00 in unsecured debt and less than $1,081,400 in secured debt.

If you are looking to get relief from harrassing credtiors, save a house or car, prevent a wage garnishment, or get your fresh start, a bankrutpcy may be the help you are looking for.