Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

 

A Chapter 7 Bankruptcy is normally filed by people as well as businesses who have little or no income left over after paying their basic living expenses (mortgage/rent, auto payment, utilities, food, insurance, etc).

Under the new bankruptcy laws you must meet the requirements of a chapter 7"means test" to determine your eligibility to file chapter 7. If your combined family income falls below the average family earnings for your state, you are eligible to file chapter 7. If your combined family income is above the average for you state, you may still be eligible to file chapter 7 if your current monthly income - your expenses x 60 mo. is less than $6000.00. There are many deductions you can claim for certain living expenses that may allow you pass the means test even if you did not pass either of the first two steps. 

In a Chapter 7 bankruptcy, most unsecured debts are dismissed and the person does not have to repay them. Unsecured debts mean items that are not secured by any collateral. This includes medical bills, credit cards, utility bills, cars that have been repossessed, etc. In other words, if a person owes a bill for something and they don't pay the bill -- can the company come and take collateral? If not, the debt is most likely unsecured.

If the creditor can come out to your home or business and re-possess physical items from you if you don't pay your bill (mortgage, furniture, boat, car, or business machinery as an example) then the debt is normally considered secure. 

Also if you have taken a personal loan and listed any personal property as collateral, the debt could also be a considered a secure loan. 

A Chapter 13 Bankruptcy (also referred to as a "wage earner plan") is a debt repayment plan. Under this chapter, the debtor is permitted to repay creditors, in full or in part, in installments over a three to five year period, during which time creditors are prohibited from starting or continuing any collection efforts. A chapter 13 repayment plan must be submitted to and approved by the bankruptcy court for chapter 13 protection to be in effect.

If your earnings situation changes for the worse and you are unable to make scheduled payments under a chapter 13 plan, you may be permitted to convert your case to a chapter 7 bankruptcy if you meet the median earning requirements for your state or are granted a new filing by a bankruptcy judge under special circumstances. This procedure would require the filing of a new bankruptcy petition.