Filing Bankruptcy chapter7 vs chapter 13

There are very significant differences between these two types of personal bankruptcy. Under chapter 7 of the bankruptcy code, also known as liquidation bankruptcy the filer’s non-exempt assets are liquidated so that his/her creditors can be paid as much as possible before any unsecured debt can be discharged. Under bankruptcy chapter 13, the filer may be granted a debt re-adjustment, typically meaning that his/her debts will be minimized however they must still be repaid.

It’s difficult to determine on your own what the most suitable chapter will be for you, and your circumstances will be unique to your own situation, so comparing your case to others can not guarantee a definite answer. The best thing any consumer can do to figure this out is to consult with a bankruptcy attorney. Most consultations are free and normally require filling out a simple and private online evaluation form. The form you fill out will give the attorney everything they need to perform an evaluation that will not only determine if you qualify for bankruptcy, but which bankruptcy chapter you can file.

Here are some tips that can “give you an idea” of where you might be and how you may qualify for one of these bankruptcy chapters:

Chapter 7 Bankruptcy

You could qualify for chapter 7, normally if you have no income or low income in proportion to your debts. Or if you have few or no assets outside of personal belongings like clothing, home furniture and such. If after paying all your necessary living expenses you have little or no money to pay for your consumer debts, then this could also qualify you for chapter 7 bankruptcy. The thing to understand about chapter 7 primarily is that if you have a large amount of unsecured debt, you could virtually get all of it discharged if you meet the necessary requirements after being evaluated through the bankruptcy means test, which must be done by an attorney.

Also keep in mind that secured debts on the other hand, are not discharged under any chapter, they must continue to be paid for or if the debt is secured against a home or car, they must be surrendered upon discharge.

Chapter 13 Bankruptcy

To qualify for chapter 13, you must have sufficient disposable income. You must be able to prove that you will have enough income to repay the newly adjusted (reduced) debt. Typically you’ll have to come up with a repayment plan that can stretch for up to 5 years, in which you will have paid in full the agreed upon amounts of your chapter 13 repayment plan. Some of the sources you may count as income are your employment income, social security benefits, pension plan payments, wages or commissions from seasonal or contract work, welfare benefits and disability benefits among others.

If you are a business owner, you can not file under chapter 13, instead you must file under chapter 11. You can, however, file under chapter 13 as an individual and you can include business related debts that you may be liable for. Because this complicates things you must consult a bankruptcy attorney for clarification and clear direction if this is your situation.

How should you file your bankruptcy petition?

That all depends on your situation; the best advice that can be given to anyone facing serious financial stress is to take advantage of the free bankruptcy evaluations that are offered by so many bankruptcy law firms and allow an experienced bankruptcy attorney to review your case and advice which not only which bankruptcy chapter is best for you, but give you a clear picture of what you can expect after filing your case.

Please do not conclude from this article that this is a definitive guide for you to determine which bankruptcy chapter to file. This process is a lot more involved and goes beyond what this article can offer. As mentioned before, all cases are different due the unique circumstances that surround each individual.

People file bankruptcy for a lot of reasons, having tons of debt does not automatically qualify you for any specific chapter, other reasons for an individual needing to file bankruptcy include going through a divorce, having suffered a death in the family in which the primary income provider passes on and also having been the victim of identity theft and not being able to resolve the debts with creditors. All these different reasons and the specific circumstances surrounding those issues will have to be analyzed by a professional attorney in order to determine the best route.

If you are still considering filing alone, read an earlier post where I discuss filing bankruptcy alone vs hiring an attorney.

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Are you considering bankruptcy?

Personal bankruptcy cases are on the rise. Hundreds of thousands of Americans declared bankruptcy in 2007 and the rate of filing has not slowed down in 2008. A tough economic state and lack of stable employment and job security are only part of the reason. Personal spending habits have certainly contributed to record levels of credit card debt and the current housing market has left many with high balance loans and depreciating values in many parts of the country.

Filing for personal bankruptcy is a tough decision and whatever the circumstances may be for you, it’s important that you educate yourself as much as you can and carefully assess your own financial situation before you proceed with filing bankruptcy. There are several types of bankruptcy that cover not only individuals but small and large businesses and of course special codes for corporations. Chapter 7 and Chapter 13 are the two types of personal bankruptcy and the most commonly filed, Chapter 11 is similar to chapter 13 though this is what an LLC, partnership or corporation would want to file.

This is a quick explanation of what filing bankruptcy is all about, what it does and the effects it can have on your financial future. Please check out the links above for detailed explanations on bankruptcy chapter 7, chapter 13 and chapter 11.

Please take note that none of content here is meant as legal advice nor is it intended to encourage anyone to file for bankruptcy. This option should be a last resort, there are alternatives to bankruptcy that you should consider before filing.

What is bankruptcy?

Bankruptcy is a legal proceeding in which people, companies or corporate entities who can no longer afford to pay their creditors, can get protection through a court order called “The Order of Relief”. Bankruptcy offers a fresh financial start and these benefits are afforded to all by federal law, therefore all bankruptcy cases are handled in federal courts. Bankruptcy puts into effect the order of relief also known as the automatic stay which stops your creditors from attempting to collect payments from you, that is until your debts are sorted out through court proceedings. The automatic stay is further explained in the Chapter 7 page.

During the process of filing bankruptcy you will need to provide specific documentation such as past tax returns, proof of income, a breakdown of all your debts, all property and assets you own, etc. It is possible to file your bankruptcy case alone but the paperwork is complicated and can be confusing. Hiring a law firm that specializes in personal bankruptcy cases is usually the best thing to do. These services aren’t always cheap though, and if you’re struggling to pay your creditors you may have trouble paying the fees for these services, which often need to be paid up front. So it’s important you prepare in advance and allocate some funds early on when you begin to consider filing bankruptcy.

There are a few chapters in the US bankruptcy code. Chapters 7, 9, 11, 12, 13, and 15. You will get a detailed explanation of chapters 7, chapter 11 and chapter 13 on this site since they are the most common forms for individuals, partnerships and small businesses. It’s easier for a bankruptcy attorney to determine which bankruptcy chapter you qualify to file, however by learning about what each chapter does and how they work you will get a good idea for which one will fit you best. Here’s some of the information you’ll need to provide before you file:

What happens after bankruptcy?

Neither one of these chapters will make it easier on your credit once you get a bankruptcy discharge. The difficulties after bankruptcy obtaining credit, renting a place to live, and qualifying for certain jobs will be the same. Unfortunately the fresh financial start can be hard to embrace when you file bankruptcy since it takes time to rebuild you financial life again. The hardships can continue if you’re not prepared to deal with what comes after. Normally after bankruptcy, most credit providers will not want to deal with you. The ones who will, can impose high interest rates and/or high security deposits because of your recent bankruptcy case.

When you file you will be required to take bankruptcy counseling courses, also known as credit counseling, from an agency approved by the US Trustee . You can find a list of approved agencies at this link: US Trustee Approved Credit Counseling Agencies. The costs are usually moderate, $20 to $30 dollars should be a good range to stick to. You will need to take the first part of this personal bankruptcy training before filing and then the second part before you get discharged.

Consider your case carefully and don’t forget that there are alternatives that depending on your situation may be a better option than filing bankruptcy.

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What to expect after bankruptcy

The process can be so nerve wrecking that once it’s over you breath relief, but never really realize or know what to expect after bankruptcy. Nothing will come easy, you can count on that. Filing bankruptcy ultimately has that affect, and your credit report will clearly reflect it as well. You’ll need to start rebuilding your credit so monitoring it closely should be one of your priorities to ensure that no further negative entires are made after your bankruptcy discharge for debts related to your bankruptcy file.

You may feel the relief after your case is discharged, but things will be hard after bankruptcy. It’s going to be a little difficult at first to feel good about this fresh new start because of the difficulties you must now face for your lack of good credit. Expect most creditors to not want to deal with you without imposing special terms in which you must provide a money deposits or pay higher interest rates.

It is possible to get loans and credit after bankruptcy. These are bankruptcy loans and their purpose is to help you get back on your feet and reestablish a positive financial record. For you to qualify for this benefit you must already have a bankruptcy discharge and/or debts must be either dismissed or satisfied.

Remember that if you are successful at getting loans or credit after bankruptcy, you will not be able to get any more protection if you default again. You can only file bankruptcy once every ten years. So there will be nothing anyone will be able to do for you if you mess this up again.

You can also expect your bankruptcy record to remain in your credit for at least the next 10 years. So even when you begin to vigorously rebuild your credit, you will be fighting against that fact.

Once you have a bankruptcy discharge, it is also very important to focus on the decisions you make from now on. You will be contacted from time to time, by agencies that specialize in credit repair. This often sounds like a good idea after bankruptcy, however, you need to consider this very carefully, because credit repair will not apply to everyone, even if they make it seem like it does. There are credit counselors and credit repair agencies that can help in certain conditions, but there are too many that aren’t worth trying.

The same thing goes for lenders and car dealers who offer you discount rates and special offers and tell you that your bankruptcy does not matter. They often target people who have filed for bankruptcy chapter 7 since they typically have to surrender assets like homes and cars for liquidation, so you MUST read their rates and terms carefully if you find the need to use their services.

Bankruptcy law protects you and affords you a new chance to start again, but it does nothing for you in terms of qualifying for credit again, so it is solely up to you to get up to a good start with your new financial life. Expect to be denied a lot and that can actually be a good thing, if filing bankruptcy did not get rid of your bad spending habits then being denied credit should help.

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