Chapter 7 and Chapter 13 bankruptcies are the two most common chapters of bankruptcy that are popular among consumers. Both chapters are suited for different needs, but they are both designed to eliminate the debt of the filer.
What They Have in Common
One aspect that both Chapters 7 and 13, as well as every other chapter of bankruptcy, have in common is “automatic stay.” Automatic stay makes any creditor’s action to contact you or collect on your debts illegal. It is put into place as soon as the bankruptcy papers are filed and stays in place for the duration of the bankruptcy process.
Chapter 7 bankruptcies are some of the most commonly filed bankruptcies for consumers, but there are qualifications that you must meet to be able to file under this chapter. The first step in determining eligibility is taking the Kentucky Means Test.
This test calculates your income over the previous six months, and compares them with the average median income of a household similar in size to yours. If your income is lower than the median income, you will automatically qualify for Chapter 7. If your income is equal to or greater than the median income, you will need to take another means test based on disposable income. If your disposable income is greater than that of the average household you may be asked to file under Chapter 13.
Chapter 7 is also known as the “liquidation” chapter of bankruptcy. This is the process of selling some of your assets in order to pay off some of your debts. Though this may seem daunting, having an experienced team of attorneys to properly strategize your case can minimize the liquidation of your assets.
Once all non-exempt assets have been liquidated, the filer is then eligible for a discharge, or release from their debts. Here are the main types of debt that can be discharged by Chapter 7:
- Credit card debt
- Medical bills
- Personal unsecured debts
- Civil judgments
- Past-due rent and contracts
- Utility bills
- Personal loans
Though there are debts that are unable to be discharged by Chapter 7, the most common types of consumer debt do have the ability to be eliminated.
Chapter 13 bankruptcies are entirely different from those under Chapter 7. It is known as the “reorganization” chapter of bankruptcy that is meant to restructure your debts to pay them off over a longer period of time. There are debt limits, however, that disqualify you from filing for Chapter 13. These limits include:
- $419,275 in unsecured debt
- $1,257,850 in secured debt
If these debt limits are exceeded, the debtor may be advised to file for a Chapter 7 bankruptcy or seek another alternative.
Chapter 13 payment plans last an average of 3-5 years, giving filers the time they need to properly make on-time payments. One of the most notable benefits of Chapter 13 bankruptcies is that filers are not required to liquidate or sell any of their assets to pay off their debts.
Though the goal of a Chapter 13 bankruptcy is not to simply gain a discharge but to instead extend the time frame of their payments, a discharge may still be granted on top of it. Other benefits to Chapter 13 bankruptcies include:
- Extending the life of current payments to prevent falling further behind
- Saving homes from foreclosure and vehicles from repossession
- Paying back less to creditors than was originally owed
- The ability to maintain possession of personal property
If you have larger amounts of debt to be repaid, a Chapter 7 bankruptcy may be of more use to eliminate them permanently. At the same time, Chapter 13 bankruptcies allow filers a longer period of time to catch up on and repay their debts without having to forfeit their property.
Contact Our Kentucky Bankruptcy Team Today
Figuring out which type of bankruptcy could work best for you can be a difficult and confusing process. With over 100 years of legal experience, we are uniquely able to help you strategize and find a solution that will benefit you in the long-term.
If you are looking to file for bankruptcy, or believe it could be right for you, don’t hesitate to get in touch with us today by contacting us through our website or give us a call at (270) 200-6326 to schedule a consultation!