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Chapter 7 vs. Chapter 13 Bankruptcy

For most individuals there are two types of bankruptcy available- Chapter 7 and Chapter 13. The information below is general and simplified. In no way do we know what will occur in your case. It is extremely important that you consult an attorney to evaluate your options before filing.

 

Chapter 7

Chapter 7 is known as a “fresh start” bankruptcy case. A typical case is discharged in three to four months. In a Chapter 7 all of your unsecured debts such as credit cards and medical bills are eliminated. Generally, you may reaffirm debts with secured creditors on property that you wish to keep such as your home or automobile or you can opt to surrender the property.

While Chapter 7 will eliminate most debts there are some debts such as child support, alimony, student loans, some taxes or special debts incurred through fraud or related to drugs or alcohol that may not be discharged under bankruptcy. It is important that you discuss with your attorney and understand what debts you will be left with after your case is completed.

Not everyone qualifies for Chapter 7. In a Chapter 7 a court appointed Trustee reviews your assets and debts. Under Alabama law individuals are given a homestead exemption of $15,000 and personal property exemption of $7500. If the value of your property exceeds your exemptions then the Trustee may liquidate or sell the property to repay your creditors. Further, you must demonstrate that you cannot afford to repay your debts and must pass a “means test”. Lastly, you may be barred from re-filing if you have had a previous Chapter 7 case within the last 8 years or a previous Chapter 13 case within 6 years.

            Typical Benefits of Chapter 7 in most cases are:        

  • It’s quick- most cases only last 3 months
  • Credit card and medical bills are erased
  • You can keep your home and car
  • Stops civil lawsuits and garnishments
  • Stops all collection activity by creditors

 

             Potential Drawbacks to Chapter 7:

  • It will not help you catch up the arrearage on your house or vehicle and the creditor can obtain relief to foreclose or repossess
  • You cannot eliminate student loans, some taxes, alimony or child support
  • You must pay your attorney and filing fees up front
  • A bankruptcy can remain on your credit for up to 10 years

 

Chapter 13

Chapter 13 is a bankruptcy repayment plan. In a Chapter 13 case you will repay all or a portion of your debt over a 3 to 5 year period. A Chapter 13 allows you to keep your property while repaying your creditors from your future earnings. A Trustee will be appointed to review your case and you will make monthly payments that will be disbursed to your creditors according to the repayment plan that is approved by the Court.

A primary benefit of Chapter 13 is that it will stop foreclosure and repossession and allow you to catch up your missed payments over time. Also, a Chapter 13 may reduce the interest rate and monthly payments on secured loans such as automobile and furniture loans. In most cases you will resume your monthly mortgage payments directly but consolidate the rest of your debts into one monthly payment.

        Typical Benefits of Chapter 13 in most cases are:

  • Allows you to keep your home and catch up your missed payments
  • Allows you to keep your automobile and you may be able to lower your monthly payments and interest rate
  • You can pay your attorney fees through the payment plan and not up front
  • Stops civil lawsuit and garnishments
  • Stops all collection activity by creditors
  • Allows you to repay tax debts through your plan
  • Allows you to repay alimony or child support arrearage through your plan

         Potential Drawbacks to Chapter 13:

  • If you fail to make your Chapter 13 plan payments you will be dismissed and creditors can resume collection activities
  • You must complete all payments under your plan to receive a discharge of your debts
  • You cannot discharge unpaid student loans, child support, alimony or some unpaid taxes
  • You may not incur new debt without court approval
  • You may not sell or transfer property without court approval
  • A bankruptcy can remain on your credit for up to 10 years

Bankruptcy Law News

Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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| Phone: 251-342-0264

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