What is the difference between a Chapter 7 and Chapter 13
Qualify to File for Chapter 7 Bankruptcy?
To find your state’s median income, visit the U.S. Trustee website. In the box titled, “Data Required for Completing the 122A Forms and the 122C Forms,” select the most recent date. Click the “Median Family Income Based on State/Territory and Family Size” link to access the median income chart.
Can I Keep My Property?
Yes—at least some of it. The amount you can keep, or “exempt,” depends on your state’s exemption laws. Most states allow you to protect essential household goods, such as kitchenware, furniture, bedding, an inexpensive car, and some jewelry.
Other types of exempt property include:
- Your residence
- Retirement funds, such as 401k accounts
- Social Security, veteran’s benefits, and disability benefits, and
- Trade or professional tools.
Common types of nonexempt property include:
- Homes with more equity than can be exempted
- Timeshares and rental property
- Boats, recreational vehicles, and motorcycles
- Artwork and collectibles
- Non-retirement investment accounts, and
- Stock or other ownership interests in a business, LLC, or corporation.
To find your state’s exemptions, check your local bankruptcy website or call the court clerk.
What Debts Are Discharged?
- Secured debt (a mortgage or car payment)
- Priority unsecured debt (most income taxes, delinquent family support payments, and penalties and fines owed to the government), and
- Student loans
The Bankruptcy Process
The automatic stay stops creditor calls.
As soon as you file, the court automatically issues an order called a “stay.” Once the automatic stay is in place, your creditors cannot contact you or attempt to collect from you. The calls come to a halt.”
Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, you keep your property, but pay back all or a portion of your debts over a three to five-year period. This is unlike Chapter 7 bankruptcy, where most of your debts are cancelled but you may have to surrender some property to the bankruptcy trustee to pay your creditors. Because you end up paying most of your debts over time in Chapter 13 bankruptcy, it is also called reorganization bankruptcy.
Eligibility: How to File for Chapter 7 Bankruptcy
If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $1,184,200 and your unsecured debts cannot be more than $394,725 (as of April 2016). A “secured debt” is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don’t pay the debt. An “unsecured debt” (such as a credit card or medical bill) doesn’t give the creditor this right.
The Chapter 13 Process
In addition, you’ll have to pay the filing fee and file a packet of forms.
The Chapter 13 Repayment Plan
How Much You Must Pay
In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you’ve fallen behind in your payments).
The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.”