If you’re interested in filing Chapter 7 or 13 bankruptcy, you probably have a lot of questions about what you may expect.
Check out the answers to common bankruptcy questions below.
While the following information provides answers to commonly-asked questions about how to file for bankruptcy, a bankruptcy lawyer can answer your more specific questions:
Frequently Asked Bankruptcy Questions
- What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
- How Do Unsecured and Secured Debts Differ?
- Is Chapter 7 or Chapter 13 Bankruptcy Better for You?
- How Long Will You Likely Be in Chapter 7 or Chapter 13 Bankruptcy?
- Will You Lose Any Property when Filing Chapter 7 Bankruptcy?
- Is It Harder for You to File Chapter 7 Bankruptcy with the New Bankruptcy Law?
- You’re Interested in Filing Chapter 13 – Will You Have to Pass a Means Test?
- Does the New Bankruptcy Law Affect You?
- What Is the Automatic Stay?
- Why Should You Work with a Bankruptcy Lawyer?
What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Both individual protections offered to consumers like you under the U.S. Bankruptcy Code, Chapter 7 bankruptcy is a liquidation process in which a bankruptcy trustee may liquidate (sell) your non-exempt assets in order to completely discharge (excuse) your unsecured debts (credit cards, medical bills, payday loans and most other debt not tied to an item or piece of property).
On the other hand, Chapter 13 bankruptcy is more commonly referred to as a reorganization of debts or a repayment plan. Rather than selling off your items in exchange for a discharge Chapter 7 liquidation), a Chapter 13 repayment plan may allow you to keep your home, car and other secured items as long as you pay back your debts during a repayment period typically lasting 3-5 years.
How Do Unsecured and Secured Debts Differ?
Chapter 7 bankruptcy works to eliminate unsecured debt, which refers to debt like credit cards, medical bills, payday loans, etc. which is not tied to a specific item or piece of property. On the other hand, Chapter 13 bankruptcy allows you to make payments on secured debts such as your mortgage or car loan, which are tied to specific pieces of property (in this case, your home and car).
Depending on your situation, the types of debts you have, and your financial goals, Chapter 7 or 13 may make more sense to your needs.
Is Chapter 7 or Chapter 13 Bankruptcy Better for You?
This tricky question of Chapter 7 vs. Chapter 13 bankruptcy can best be answered by a local bankruptcy lawyer. With that said, Chapter 7 bankruptcy may be better for you if you have low income, little property and a fair amount of unsecured debts. Chapter 13 bankruptcy may be more suitable to your situation if you own a significant amount of property (like a home or car), have a regular source of income, and demonstrate the ability to catch up on your payments under your Chapter 13 repayment plan.
How Long Will You Likely Be in Chapter 7 or Chapter 13 Bankruptcy?
Chapter 7 bankruptcy cases can sometimes move with surprising quickness, with a discharge possibly attainable in just a few months. Chapter 13 repayment plans typically last anywhere from 3 to 5 years.
Will You Lose Any Property when Filing Chapter 7 Bankruptcy?
While Chapter 7 liquidation allows your bankruptcy trustee the power to sell off your non-exempt assets in order to pay off your creditors, you should know that most Chapter 7 bankruptcy petitioners do not have any non-exempt assets and that there is usually no liquidation of property in most Chapter 7 cases.
Is It Harder for You to File Chapter 7 Bankruptcy with the Means Test?
As part of the new bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), a means test was implemented for all Chapter 7 hopefuls with the goal of making sure that only people in need of filing Chapter 7 bankruptcy were doing so. While the means test may have added another step or two when it comes to filing Chapter 7 bankruptcy, most people have found that they are still eligible to file Chapter 7 bankruptcy since the implementation of the new bankruptcy law.
The Chapter 7 means test consists of a comparison of your income with the median income in your state for a family the same size as yours. If your income is at or below the median income in your state, you pass the Chapter 7 means test and are eligible to file for this form of personal bankruptcy protection. If not, you move on to the next step of the means test, which consists of a calculation and comparison of your disposable income and unsecured debts.
To learn more about your Chapter 7 eligibility, be sure to get in touch with a local bankruptcy lawyer.
You’re Interested in Filing Chapter 13 – Will You Have to Pass a Means Test?
There is no explicit means test for filing Chapter 13 bankruptcy. With that said, if you are interested in filing Chapter 13 bankruptcy, you will still have to meet certain requirements, as you will being making repayments on your home and car in order to keep those items.
These requirements typically include having a regular income and demonstrating that you will be able to stay current with your monthly payments in addition to being able to catch up on your secured debts during your 3-5 year repayment plan.
Generally speaking, Chapter 13 bankruptcy is most often used to stop foreclosure or repossession.
How Else Does the New Bankruptcy Law Affect You
In addition to having to pass the means test when filing Chapter 7 bankruptcy, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) mandates other things, regardless of whether you file Chapter 7 or 13.
Prior to filing either Chapter 7 or Chapter 13, you will need to obtain a credit counseling briefing from an UST-approved agency. The credit counseling briefing covers topics like alternatives to bankruptcy.
After filing Chapter 7 or 13 but before you can receive your discharge, you will need to complete a certified debtor education course which covers healthy financial habits after your bankruptcy.
Failing to meet these requirements will most often lead to your bankruptcy case being dropped and the automatic stay being lifted. With that said, you can purchase online or telephonic credit counseling and debtor education at Start Fresh Today (SFT).
What Is the Automatic Stay Again & How Does It Help You?
When your bankruptcy petition is filed with the bankruptcy court, an automatic stay will be entered. This court order may prevent any further collection efforts by debt collectors against you. In other words, the automatic stay makes it illegal for collectors to contact you or proceed with collection efforts against you during your bankruptcy case; thus, it can provide you with a feeling of relief knowing that collectors can no longer harass you.
Why Should You Work with a Bankruptcy Lawyer?
A local bankruptcy lawyer may help:
- examine which type of bankruptcy is more suitable to your needs
- determine your bankruptcy eligibility
- answering any of your questions about the bankruptcy process
- prepare paperwork
- adhere to bankruptcy deadlines
- file documents with the court
Fill out our free bankruptcy case review form and we’ll connect you with a sponsoring bankruptcy lawyer in your area.
The above synopsis of bankruptcy law is by no means all-inclusive and
is not intended to provide legal advice. These laws may have changed
since our last update and there may be additional laws that apply in
your situation. For the latest information on bankruptcy laws, please
contact a local bankruptcy attorney in your area.