If you’ve lost your job, and you are unsure how you’ll successfully manage your finances in the months or years to come; you are not alone. In fact, as of May 2020, the unemployment rate was the worst it’s been since the Great Depression. If you find that you are out of work and struggling with debt, you may want to consider filing bankruptcy.
Chapter 7 vs. Chapter 13 Bankruptcy
There are two main types of individual bankruptcy (not business bankruptcy), Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is fast – particularly in comparison to Chapter 13 bankruptcy. Many Chapter 7 bankruptcies are complete within months, while the Chapter 13 bankruptcy requires a minimum of 3 years, and could require up to 5.
Chapter 7 is generally the best option for people with high debt compared to low income and little to no assets. Generally Chapter 7 is not as well advised for individuals who don’t qualify for Chapter 7 due to their income; have excessive non-dischargeable debts like child support; have fallen behind on their house or car payments; or would benefit by using the power of chapter 13 to lower their interest rates on a car. If the filer has the income to cover the payments, but just needs to catch up, Chapter 13 makes this possible.
Chapter 7 is referred to as the liquidation bankruptcy because non-exempt assets are liquidated with proceeds distributed to creditors. Individuals with substantial resources/assets may prefer Chapter 13 as no assets are sold to pay creditors in a Chapter 13 bankruptcy.
Filing Chapter 7 bankruptcy requires passing the means test; a standard test that determines whether or not a filer’s income qualifies them for Chapter 7 bankruptcy protection. Those who do not qualify for Chapter 7 bankruptcy may qualify under an exception (called ‘a Lanning deviation’) and also can often benefit from filing Chapter 13 bankruptcy.
Once a Chapter 7 bankruptcy is filed, and the court liquidates any non-exempt assets to distribute funds to creditors. The court issues a discharge of debt that essentially removes the filer’s liability to pay any and all dischargeable debts included in the bankruptcy. In comparison in Chapter 13, the debtor is protected, you are left alone to pay creditors what the Judge agrees you can afford. The Chapter 13 used to be referred to as a “wage earner” bankruptcy because it was designed for employeeswith a regular paycheck. Now its opened up for folks with other types of income including roommate contributions; side hustles; disabilities; odd jobs; self employment; and internet income. In effect, all persons with reliable income should consider the hope provided in a carefully crafted and individualized Chapter 13 plan as this type of bankruptcy reorganizes the filer’s debts and finances into a plan allowing them to pay back their creditors over the course of three to five years while retaining their assets.
What About Non-Dischargeable Debts?
If you’ve lost your job, and you’re considering filing bankruptcy, you probably have concerns about what debt is dischargeable and what debt is nondischargeable. Dischargeable debt refers to consumer debts like credit cards, other revolving debt, personal loans, etc. After filing bankruptcy and receiving your discharge, the filer is no longer responsible for paying discharged debts, but they will still be responsible for paying any non-dischargeable debt. Non-dischargeable debt includes:
- Family Court Debt: Spousal or Child Support, etc.
- Criminal Court Debt: restitution payments, fines, traffic ticket fees, etc.
- Government Debt: Back Taxes, Student Loans, etc.
If you’ve recently lost your job and you aren’t sure how you’ll pay your debts, consider speaking with a bankruptcy attorney. Financial struggle is always difficult, but it is particularly stressful and unnerving during uncertain times. Please don’t hesitate to contact Ken Rannick. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. You are in good hands with Kenneth C. Rannick P.C. Get in touch with Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney as soon as possible.