In a Chapter 7 bankruptcy, you request the court to remove and release the debts you owe. Under a Chapter 13 bankruptcy, you propose a plan to the bankruptcy court suggesting how you will repay all or a portion of your debts. Some debts must be repaid in full, while some debts may be repaid partially or may be eliminated in full. This is determined on what you can afford.
Dividing debts into categories with Chapter 13 bankruptcy
How much you are required to pay on each type of debt varies. For the most part, you must repay 100% of your secured and priority debts with some exceptions. Secured debts primarily include mortgages and car loans. Other debts are considered as "priority debts" by bankruptcy law. These debts include child support and certain income tax debts.
How much you must pay to your unsecured creditors under Chapter 13 bankruptcy depends on many factors. The repayment plan requires you to apply all disposable income to your debts. Disposable income is the amount of money that households have available for spending and saving after certain monthly expenses have been accounted for.
What unsecured creditors receive in repayment depends on the money you have left over each month after paying secured debts, expenses, and priority claims. In addition, at a minimum, your unsecured debts must be paid to creditors the amount that would have been established if you filed a Chapter 7 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcies are typically faster than Chapter 13 as they are usually completed in 3 to 6 months. Most debtors can keep all or most of their property. Chapter 7 filers typically do not have to pay back a portion of their debts as with a Chapter 13.
Advantages of Chapter 7 Bankruptcy
A Chapter 7 bankruptcy case is usually opened and closed within a three to six month time frame. Although you can lose property in Chapter 7 bankruptcy, most filers do not.
Many people facing bankruptcy ask will I lose my home or residence. This depends on if the mortgage payments are current? If the payments are up to date it is likely you will be able to keep your home.
If you have fallen behind on the mortgage payments, the results may differ under Chapter 7 and Chapter 13 bankruptcy. Every circumstance is different so it is very important to discuss this concern with one of our affordable and experienced bankruptcy lawyers.
Qualifying for Chapter 7 bankruptcy
A means test is used to determine if you qualify for chapter 7 bankruptcy. If your income is insignificant enough to fund a chapter 13 repayment plan, after expenses and monthly payments are deducted, you will be allowed to file a chapter 7 bankruptcy.
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