Kentucky Bankruptcy: What Is the Difference between Chapter 7 and Chapter 13?
If you are struggling every month to pay your bills yet you seem to be falling farther and farther into debt, filing for bankruptcy protection may be the best long-term solution. Although it is usually not an easy decision to make, bankruptcy may be your best option. Once the difficult decision to at least consider bankruptcy has been made you will then need to decide which Chapter is right for you. Most individuals (or couples) file bankruptcy using Chapter 13 or Chapter 7. Understanding the difference between Chapter 7 and Chapter 13 will help you decide which is right for you and your situation.
Kentucky Bankruptcy Basics
A Chapter 7 bankruptcy is the traditional form of bankruptcy and is often referred to as a “liquidation” or “complete” bankruptcy. In a Chapter 7 bankruptcy debtors may retain significant property called “exempt” property. Property that can be retained includes substantial equity in the home, furniture and furnishings, most retirement benefits, automotive equity, and a limited amount of cash. In most cases Chapter 7 debtors retain most or all of the property they own, however, non-exempt property must be turned over to the Bankruptcy Trustee. Most debtors who file a Chapter 7 bankruptcy have little, if any, non-exempt assets, therefore, most Chapter 7 debtors do not lose assets when they file bankruptcy in Hardin County and Meade County, Kentucky.
In order to be eligible to file a Chapter 7 bankruptcy in Hardin County or Meade County, debtors must meet certain income limitations. If your household income exceeds the median income for a family of similar size in your area then you must pass a “means test” to determine eligibility for filing a Chapter 7. Your attorney will help you complete a means test. At the end of a Chapter 7 bankruptcy (usually 4-6 months after filing) all of your dischargeable debts are discharged, meaning you are no longer responsible for paying them.
Those not eligible for a Chapter 7 bankruptcy often may obtain significant debt relief by filing a Chapter 13 bankruptcy. Under Chapter 13 the debtor establishes a repayment plan under which all or part of the debts are paid through the Bankruptcy Court over an extended period of time, usually 3 to 5 years. A Chapter 13 filing is particularly useful for debtors who are facing foreclosure of their home or repossession of an automobile. For example, a debtor facing foreclosure could stop the foreclosure by filing a Chapter 13 and pay the past due amount through the Court which would have the effect of bring the mortgage up to date. Automobile loans can often be entirely included in a Chapter 13 which, when combined with other indebtedness, usually results in a lower monthly payment. Once the plan is accepted by the Court the debtor pays the Court and the Court distributes the funds to the creditors in accordance with the approved plan. At the end of the repayment plan remaining unsecured debts, such as credit cards and signature loans, are usually discharged. As long as you abide by the terms of the repayment plan you are protected from collection activities by your creditors.
Kentucky bankruptcy law can be complicated and you should discuss your individual situation carefully with your attorney before selecting a plan. An experienced Kentucky bankruptcy attorney can help you to determine the best plan for you.
To learn more, please download our free Chapter 13 Bankruptcy in Kentucky here.