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Chapter 7 Versus Chapter 13 Bankruptcy


Many people are virtually clueless on the differences between types of bankruptcy, and when they are faced with a decision of whether or not to file, they panic, due to lack of knowledge.  Although you should always consult a bankruptcy attorney in this situation, knowing the basic differences between Chapter 7 and Chapter 13 might ease some stress in your tough financial time.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy filing is an indivdual or business becoming exempt from having to pay certain debts, while retaining some assets like their home, car, and other household essentials – as long as they do not exceed certain values determined by the U.S. Bankruptcy Code.

If Chapter 7 is filed correctly, using the Bankruptcy Code to the best of one’s ability, some assets can be retained, while severe debt will be removed.  It is the quickest and simplest form of bankruptcy available.

To be eligible to file a Chapter 7 bankruptcy you must…

  • reside in the United States
  • not have been a debtor in a bankruptcy case in the 180 day period prior to filing the current case
  • receive counseling from an approved non-profit budget and credit counseling agency before filing
  • pass the “median family income” test.

Your Median Family Income Level

The most important factor in determing whether or not you will be able to file Chapter 7 is your median family income level.

Review the income made in the previous six months and average it out.  If the average income falls below the “median family income,” as stated in 11 U.S.C. 707(b)(7),  then filing for Chapter 7 is appropriate.  If it exceeds the “median family income,” then you will most likely be subject to…

Means Testing

The means testing calculation averages the amount of the income you received during the six-month period before to the bankruptcy filing, and subtracts it from your average monthly expenses. This determines the margin of excess income. Using this number, you determine if the excess income exceeds the margin allowed by 11 U.S.C. 707 (2)(A)(i), and if you are eligible to file Chapter 7 bankruptcy.

What If I’m Not Able to File For Chapter 7?

If you are unable to file for Chapter 7 due to the “median family income” level being too high, as well as failing the means testing, then your other option is filing a Chapter 13.

How Do I Receive a Chapter 7 Discharge?

  • must not have received a Chapter 7 bankruptcy discharge in the previous eight years
  • must not have receive a Chapter 13 discharge in the previous six years

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy filing allows you to seek protection of your property and develop a plan of paying creditors by making monthly payments to a Trustee under Court supervision. The plan can be for as little as 2 years, or for as long as 5 years.

To be eligible to file a Chapter 13 bankruptcy, you must….

  • reside in the United States
  • have a regular income
  • have unsecured debt less hand $336,900
  • have secured debt less than $1,010,650
  • receive counseling from an approved non-profit budget and credit counseling agency.

Pros of Chapter 13

  • you can obtain discharge of unpaid balances while retaining all of your assets, by paying a portion of your debts over the duration of the Chapter 13 plan
  • avoid foreclosure of your home
  • more debts are discharagable in Chapter 13 than in Chapter 7

Cons of Chapter 13

  • you must pay a reduced amount against the entire debt, to unsecured creditors
  • the discharge will not be received until all payments are complete, but in chapter 7, it usually takes about four months.

How Do I Receive a Chapter 13 Discharge?

  • you must not have been granted a Chapter 7 bankruptcy discharge in the previous four years.
  • you must not have been granted a Chapter 13 discharge in the previous two years.

Filing for bankruptcy is a complicated and life-changing procedure.  Don’t go through it alone.  Contact The Adkins Firm, your bankruptcy attorneys in Georgia, ready to serve you.

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