Many of those entertaining the idea of filing bankruptcy go to their first consultation with their bankruptcy attorney with the intention to file Chapter 7 bankruptcy or not file bankruptcy at all. Yet, in many cases, Chapter 13 bankruptcy is a beneficial option.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” It is relatively quick (the process typically takes about four months) and ends with a discharge of unsecured debt. Yet, some bankruptcy petitioners do not qualify for Chapter 7 bankruptcy or have personal requirements that prevent them from filing Chapter 7.
The majority of consumer bankruptcies are Chapter 7 filings. Many potential filers come to their bankruptcy attorney with a story from a friend or acquaintance who filed Chapter 7 bankruptcy, received a discharge of debt, and started over quickly. They want to replicate the results. The problem is that life is not that simple. Every person’s life and situation is different. Every bankruptcy petitioner is going to have their own, unique case, and set of circumstances. It’s best not to compare your financial situation to someone else’s. It is very rarely comparable.
What is Chapter 13 Bankruptcy?
Even if a bankruptcy petitioner does not qualify to file Chapter 7 bankruptcy, they may file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of debt followed by a potential/partial discharge of remaining debt. The repayment plan is determined by the bankruptcy court and is a minimum of 3 years and a maximum of 5 years. While the purpose of the Chapter 13 bankruptcy repayment plan is to repay as much of the petitioner’s debt as possible, a vast majority of Chapter 13 filers do not pay their debts in full. The petitioner makes monthly payments to their Chapter 13 bankruptcy trustee based on their ability to pay. If the debtor can only afford to pay $150/month for 36 months towards $60,000 in credit card debt, that leaves a chunk of debt remaining. The remaining $54,600 is discharged upon the successful completion of the Chapter 13 repayment plan.
What Are the Benefits of Chapter 13 Bankruptcy?
- Not everyone is eligible to file Chapter 7 bankruptcy. In some cases, the petitioner’s income is too high to qualify for Chapter 7 bankruptcy, but they are still eligible to file Chapter 13 bankruptcy.
- When filing Chapter 13 bankruptcy, the petitioner loses no assets. If the petitioner has significant assets or high-value assets, they do not wish to lose; they should discuss the options with a bankruptcy attorney. Chapter 7 bankruptcy offers exemptions, but they are limited (in number and value), so in many cases, petitioners worried about losing assets prefer Chapter 13 bankruptcy to Chapter 7.
- Chapter 13 bankruptcy offers the advantage of continued protection from debt problems that may arise post-filing. For example, if a petitioner is filing to relieve the burden of massive debt, but is also dealing with a chronic illness that will likely result in significant future medical bills, they can file Chapter 13 bankruptcy immediately. After making their monthly payments to the bankruptcy court for a couple of years, they can convert to a Chapter 7 bankruptcy and add the additional debt while seeking a discharge of debt.
- Petitioners worried about losing their home to foreclosure or their vehicle to repossession can receive temporary relief with a Chapter 7 filing, but Chapter 13 bankruptcy offers more than a temporary solution or stall. For example, filing Chapter 13 bankruptcy stops a foreclosure sale and provides a plan to pay back the mortgage arrears (interest free) throughout the course of the repayment plan. Chapter 13 bankruptcy is also beneficial when a vehicle is repossessed.
If you are filing personal bankruptcy and you aren’t sure if you should file Chapter 7 or Chapter 13 bankruptcy, please don’t listen to conjecture. Instead, get in touch with our experienced bankruptcy attorneys to discuss your options. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.