You may be in a situation where you have debt collection agencies pursuing you, and you don’t have the means to pay. So, you are considering bankruptcy. You realize that there are multiple types of bankruptcy, and let’s be honest, they are confusing.
Are you currently stuck with an option of filing Chapter 7 bankruptcy, and filing Chapter 13, but you don’t know which is the most ideal? If that appropriately describes you, then you should know that this article contains some vital information about bankruptcy.
Just in case you can’t read this article to the end, here are the three things to first consider before filing under a bankruptcy chapter:
1. The cost of a bankruptcy petition
2. The duration of the case
3. The credit
Even though a lot of people have testified to the way Chapter 13 bankruptcy has helped them clear their debt, some only have tales of disaster to tell. To have a better grasp on which is the most ideal for you between a Chapter 7 bankruptcy and Chapter 13 bankruptcy, then make use of Chapter 7 vs.Chapter 13 calculator in this article. It’ll assist in estimating the cost and duration of each option.
1) An Overview Of Chapter 13 And Chapter 7 Bankruptcy
A lot of individuals have not experienced the freedom they expect from filing under Chapter 13 bankruptcy. The most significant reason for this is the lack of an adequate explanation of what both bankruptcy types entail. Based on experience, most bankruptcy applicants that have regretted their decision lack knowledge of one / some / all of these three things:
1. The majority of Chapter 7 bankruptcy attorneys have payment plans for their fees.
2. The cost of filing under Chapter 13 bankruptcy far exceeds other bankruptcy types
3. You can keep your assets when you file under Chapter 7 bankruptcy.
However, to make an apt choice, it’s imperative that you understand the workings of these two bankruptcy types:
1) What Is A Chapter 7 Bankruptcy?
The Chapter 7 bankruptcy is one filed under Chapter 7 of the U.S. bankruptcy code. Another name for this bankruptcy is a liquidation bankruptcy, and this is because assets that are not covered by a bankruptcy exemption may be liquidated and the proceeds are used to pay unsecured debtors. However, most Chapter 7 cases don’t result in asset liquidation. Although the possibility of losing is still high if you don’t adequately review the limitation of your exemption before filing under Chapter 7 bankruptcy.
To file for Chapter 7 bankruptcy, you’ll have to be a business, an individual with business debts, or an income earner that has met the income requirement for the discharge. The bankruptcy court won’t grant your bankruptcy application except you meet its strict income requirements.
It is important to note that the bankruptcy court does not consider income requirements for business debts such as personal guarantees on business debts, sole-proprietor debts, and co-signed business loans. Businesses that file under Chapter 7 bankruptcy are always closed and liquidated.
You also may have to qualify for Chapter 7 bankruptcy. After reading the above paragraphs, if you’re still keen on filing under Chapter 7 bankruptcy, then I’ll advise that you take the Chapter 7 means test to estimate whether you qualify for a discharge.
2) What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy can best be described as one that gives debtors an opportunity for debt restructure; giving them a more convenient debt payment schedule and expectation. One factor that limits people from filing under this bankruptcy chapter is its demand for a steady flow of income. Without a verifiable steady flow of income, your bankruptcy petition will be denied. This bankruptcy chapter accommodates business earners, however, businesses themselves can’t get a discharge under the bankruptcy chapter. Thus, financial experts often advise that businesses that want a debt restructuring to apply for Chapter 11 bankruptcy.
A good majority of Chapter 13 bankruptcy cases have a 60-month term. But there are opportunities for debtors to opt for a 36-month plan if their income falls below the median income in their state of residence. The real amount that a debtor is mandated to pay is dependent on a multitude of factors; these include the person’s assets, income, debts and expenses. Under certain scenarios, financial transactions for the past few months may also be considered before a Chapter 13 discharge certificate is issued.
The Pros And Cons Of Chapter 13 Bankruptcy
Before you file for a Chapter 13 bankruptcy, I will advise that you first consider its multitude of pros and cons. That said, you don’t want a Chapter 13 to cause financial ruin. Some of these include:
● Filing for a Chapter 13 bankruptcy will help you to prevent foreclosures and repossessions. Debtors will have the opportunity to repay their automobile and mortgage loans.
● The cost of filing for chapter 13 attorney fees is very high.
● Assets that are at risk of liquidation in Chapter 7 bankruptcy are protected in Chapter 13 bankruptcy.
● Debtors have to first get approval in a bankruptcy court before acquiring new debt or selling their assets.
● Most debtors that file for Chapter 13 bankruptcy opt for a 60-payment plan.
The Pros And Cons Of Filing Under Chapter 7 Bankruptcy
Before you file under a Chapter 7 bankruptcy, I will advise that you first consider a gamut of information. Many people decide to hire a bankruptcy attorney because mistakes can be costly. Here are some to consider:
● The fastest way to exit debt is by applying for bankruptcy under Chapter 7 bankruptcy law. Most no-asset Chapter 7 cases are typically discharged and closed within the first six months of applying for bankruptcy.
● Debtors can get a bankruptcy discharge without making a payment to creditors.
● It’s possible to exit debt by simply surrendering your collateral to your creditors. For most cases, these collaterals are worth far less than the amount owed. If the creditor accepts this, then they’re legally banned from requesting payment for the remaining sum of money.
● Attorney fees are often one and a half times more for a Chapter 7 case than a Chapter 13 bankruptcy case.
● Properties not protected by bankruptcy exemptions can be liquidated by a bankruptcy trustee,
● You won’t get a discharge on all your debt with this bankruptcy type.
As such, you may still owe some money even after getting a bankruptcy discharge. Some debts you won’t get a discharge on include alimony, tax debts, child support, and student loans. As you can see, there are many pros and cons of filing bankruptcy. You can also consider alternatives such as debt settlement and debt management.
Calculating Costs For Chapter 7 And Chapter 13 Bankruptcy
Before making your choice between one of these two, it’s best to first make a comparison to know which is the most ideal option for you. To assist you in this process, we’ve built a Chapter 7 vs Chapter 13 bankruptcy calculator that would help you with the following:
● Calculate your probability of getting a Chapter 7 bankruptcy discharge
● Providing a detailed estimated payment on your Chapter 13 bankruptcy
● Elucidate on the cost and fee of applying for both Chapter 7 and Chapter 13 bankruptcy
● Make a comparison of the demerits and merits of choosing either Chapter 7 bankruptcy and Chapter 13 bankruptcy.
● Provide relevant financial information based on your location
Factors To Consider When Making A Choice Between Filling Under Chapter 7 Or Chapter 13 Bankruptcy
It’s imperative that you first consider the following information before making your choice between filing under Chapter 7 bankruptcy and Chapter 13 bankruptcy discharge.
Income Requirements
Choosing a preferred bankruptcy type is very tricky. To make the right decision, it’s necessary that you first consider many details, one of which should include your income. Why? This is because Chapter 7 bankruptcy doesn’t allow just anyone to get a discharge except you to pass the means test, which is dependent on the household income.
Are you wondering about how you can pass the means test? In a situation where your household’s median income is higher than your state’s median income, then you should file under Chapter 13 bankruptcy.
Repossessions And Foreclosures
If you find yourself in a predicament where you’re behind on mortgage payments, then you shouldn’t opt for a Chapter 7 bankruptcy discharge. The best option is to make a debt restructuring that will help you catch up with your financial obligations to creditors. Apart from this, you should also opt for a mortgage refinance and even modification to your payment terms. A bankruptcy option that helps to prevent foreclosures is Chapter 13 bankruptcy, and this is due to its ability to help in payment restructuring.
Also, if making necessary car payments is challenging, then you should not file under Chapter 7 bankruptcy as it won’t help to protect your car from repossessions. Chapter 13 on the other hand helps by including your automobile loan in its payment plant. And you can spread out payments to help reduce your payment sum.
The Equity You Own In Assets And Properties
Bankruptcy exemptions only protect certain assets. For might lose those that are valued above the allowable Chapter 7 bankruptcy exemption. However, to mitigate against asset loss, then I will recommend that you pay a bit higher in your Chapter 13 repayment plan.
