Crushing debt and the feeling of being unable to pay your bills can lead you to look for a way to reduce or eliminate your debt. All bankruptcy cases are handled by federal courts, though states have some control over portions of the process. This can make the process of filing for bankruptcy seem just as insurmountable as your pile of bills. Understanding the aspects of Chapter 7 vs Chapter 13 is critical for your success in the bankruptcy process.
As you begin researching your bankruptcy options, you will see that you may have multiple options. As an individual, you can file Chapter 7, Chapter 11, Chapter 12, or Chapter 13. These options are not available to everyone, as they are based on income, amount of debt, and profession. Chapter 12 bankruptcy, for example, is restricted to farmers and fishermen. Your attorney can advise you on the best option for your situation, but Chapter 7 and Chapter 13 were most common.
Similarities When Comparing Chapter 7 vs Chapter 13 Bankruptcy
The wide variety of bankruptcy options can be overwhelming. Even examining the differences between only Chapter 7 and Chapter 13 bankruptcy can be confusing. However, there are some similarities in the two forms of bankruptcy which can create a basis for understanding the two most popular forms of bankruptcy.
In both forms of bankruptcy, you are required to seek credit counseling in the 180 days prior to filing for bankruptcy and to complete a debt education course after filing. The purpose of these requirements is to ensure that you are aware of all of your options for dealing with debt, as well as to help you learn how to manage your money so that you do not find yourself in this difficult financial position again.
You must also know your own financial situation, including all of your outstanding debts. You will be required to provide detailed financial information in order to ensure that all of your debts and creditors are dealt with, as well as to ensure that you file the appropriate form of bankruptcy. If you have lost track of some debts, a credit report may help you to find the information you need.
Perhaps most important to consider when comparing Chapter 7 vs Chapter 13 is that both forms of debt relief do result in the discharge of your debts, giving you a fresh start. However, both forms of debt relief are also limited in power. Some debts cannot be forgiven under bankruptcy filings, including:
- Back child support or alimony
- Some tax debts
- Student loans
- Debts related to criminal charges
- Any debts not listed in your filing paperwork
These debts must still be paid outside of your bankruptcy proceedings, but the assistance you receive with your other debts will make it easier to make these payments.
Chapter 7 Bankruptcy
In order to qualify for a Chapter 7 bankruptcy, you must pass the Georgia means test. If your income is below the median for the state, you automatically qualify. If not, you will need to complete the means test to determine whether or not you qualify for Chapter 7 bankruptcy.
Under Chapter 7 bankruptcy, your assets are turned over to a court-appointed trustee. This trustee sells off your property and use the proceeds to make payments to your creditors. For this reason, many people fear that a Chapter 7 bankruptcy means that they will lose everything. Georgia law allows some exemptions, though, which allow you to maintain some property and income. Some examples of property and income you may be able to keep include:
- Up to $250 in disability benefits
- Workers’ comp payments
- Up to $21,500 in a primary residence
The dollar value of the residents is the equity or the value of the home minus the amount owed. If your home is worth $200,000 and you still owe $190,000 on it, then your equity is $10,000 and you will be able to keep your home, as long as you are current on your payments.
Additionally, you can use any remaining home exemption up to $5,000 to exempt other property.
Finally, a Chapter 7 bankruptcy is completed upon the sale of your non-exempt property and distribution of the proceeds to the creditors.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is intended for individuals with overwhelming debt, but a reasonable, steady income. For this reason, your income may exceed the state median. Because you can show a steady income, instead of selling off property to pay debts, you will be required to make a payment plan using your disposable income.
Disposable income is generally the amount of money left over after you have paid your required bills, such as housing and utilities. However, if your income is above the state median, as it is for many who file for Chapter 13 bankruptcy, the expenses you are allowed to list are not the amounts you actually pay. Instead, you are required to use amounts set by the IRS. These amounts vary depending on various factors, including your family size. You are required to use IRS guidelines to determine your expense deduction for:
- Transportation expenses
In addition to expense amounts regulated by the IRS, you can also deduct:
- Mandatory payroll deductions
- Child support or alimony
- Healthcare expenses, out-of-pocket
- Charitable contributions
Once your disposable income is calculated, you will make a plan to spend all of that disposable income toward your debts. Creditors are allowed to object to your payment plan, so be certain to consult your attorney so that your proposed plan is fair and will be accepted.
Chapter 13 bankruptcy does not end as quickly as Chapter 7 since you will spend three to five years fulfilling your repayment plan. The length of your repayment plan depends on your income, and you can expect to be on a longer plan if you have a higher income. This is because Chapter 13 bankruptcy does not just relieve you of debt, but also seeks to help creditors recover some of the money owed to them.
Contact an Expert Atlanta Bankruptcy Attorney
When you are considering bankruptcy, you need an experienced professional by your side. The attorneys at Cornwell Law Firm can help you find relief from your debts by choosing the right debt relief option for your situation. Contact us today to schedule a free consultation.