Chapter 13 Bankruptcy Lawyer
Chapter 13 and Chapter 7 bankruptcies are two distinct legal options available to individuals and businesses facing financial hardship in the United States. Each chapter serves different purposes, has specific eligibility requirements, and involves unique processes and outcomes. Understanding the differences between Chapter 13 and Chapter 7 bankruptcy is crucial for those considering these options.
Chapter 7 Bankruptcy: Liquidation
Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy. It is designed for individuals or businesses with significant debt and limited means to repay it. Here’s how it works:
- Eligibility: To qualify for Chapter 7, individuals must pass a means test, which evaluates their income and expenses to determine if they have sufficient disposable income to pay back their debts. Businesses are also eligible for Chapter 7, but the process differs slightly.
- Liquidation: In Chapter 7, a court-appointed trustee takes control of the debtor’s non-exempt assets and sells them to pay off creditors. Some assets, such as essential personal belongings and certain types of property, may be exempt from liquidation, depending on state laws.
- Discharge: Once the liquidation process is complete, the remaining unsecured debts are discharged, meaning the debtor is no longer legally obligated to repay them. However, some debts, like child support, student loans, and certain taxes, may not be dischargeable.
- Speed: Chapter 7 bankruptcy proceedings typically move relatively quickly, often concluding in a matter of months. This can provide debtors with a fresh start more rapidly.
- Credit Impact: Chapter 7 bankruptcy can have a significant negative impact on a debtor’s credit score, making it harder to obtain credit in the future.
Chapter 13 Bankruptcy: Repayment Plan
As a lawyer, like a Chapter 13 bankruptcy lawyer understands, Chapter 13 bankruptcy is known as “reorganization” bankruptcy and is designed for individuals with a regular source of income who want to repay their debts over time. Here are the key aspects of Chapter 13:
- Eligibility: Chapter 13 is available to individuals and sole proprietors with unsecured debts below a certain threshold and secured debts below another threshold. The debtor must have a reliable income to propose a repayment plan.
- Repayment Plan: Debtors under Chapter 13 propose a repayment plan to the court, outlining how they will pay back their debts over three to five years. The plan typically prioritizes secured debts (e.g., mortgages and car loans) and may pay only a portion of unsecured debts.
- Asset Retention: Unlike Chapter 7, debtors in Chapter 13 retain their assets, even if they are non-exempt, as long as they adhere to the repayment plan.
- Discharge: Once the repayment plan is successfully completed, any remaining eligible unsecured debts are discharged. This discharge provides debtors with relief while allowing them to keep their assets, as lawyers from a law firm like Therman Law Offices, LTD knows.
- Credit Impact: Chapter 13 bankruptcy generally has a less severe impact on credit scores than Chapter 7, as it shows an effort to repay debts rather than liquidate assets.
The choice between these two options depends on the debtor’s financial situation, income, and long-term goals, and it’s important to consult with a bankruptcy lawyer to determine the most suitable course of action. Reach out to your trusted lawyer for help now.