The Difference Between Chapter 7 and Chapter 13 of the Bankruptcy Code
Author: Law Office Of Goldstein
Individuals who have amassed large debts have many options. However, if an individual finds that non-bankruptcy alternatives are not feasible, a decision then must be then made between filing a Chapter 7 liquidation proceeding or a debt adjustment proceeding under Chapter 13.
A Chapter 7 bankruptcy filing is best described as obtaining a discharge from debts (with some exceptions) while retaining some assets such as a home, household goods and an automobile as long as they do not exceed certain values determined by the U.S. Bankruptcy Code. Chapter 7 is consider a "liquidation" decision however if filed correctly and using the Bankruptcy Code to the best of your ability some assets can be retained while crushing debt is removed.
To be eligible to file a Chapter 7 bankruptcy the filer has to reside or be domiciled in the United States. In addition, they can not have been a debtor in a bankruptcy case in the 180 day period prior to filing the current bankruptcy case; they must receive counseling from an approved nonprofit budget and credit counseling agency prior to the filing and pass the "median family income" test. In order to receive a discharge in a Chapter 7 an individual may not have received a Chapter 7 bankruptcy discharge in the previous eight years or a Chapter 13 discharge in the previous six years.
The element which will fully determine if you can file a Chapter 7, is the "median family income" level. The individual or couple must review income made within the previous six months and average it out. If when the average income is measured against the "median family income" as stated in 11 U.S.C. § 707(b)(7) and it falls below, then a Chapter 7 filing is appropriate. If the household income exceeds the "median family income", then the individual or couple will be subject to the means testing. The means testing calculation takes the average amount of the income received during the six-month period prior to the bankruptcy filing and subtracts it from the average monthly expenses. This determines the margin of excess income. Using this figure you determine if the excess income exceeds the margin allowed by 11 U.S.C. § 707(2)(A)(i) and if you are eligible to file a Chapter 7 bankruptcy.
If you are unable to file for Chapter 7 due to the "median family income" level being too high and failing the means testing, then your other option is filing a Chapter 13. A Chapter 13 bankruptcy filing allows a person to seek protection of their property and develop a plan of paying creditors by making monthly payments to a Trustee under Court supervision. The plan can be for as little as 24 months or for as long as 60 months.
To be eligible to file a Chapter 13 bankruptcy the filer must reside in the United States, have a regular income, have unsecured debt less hand 6,900 and secured debt less than ,010,650 and receive counseling from an approved non profit budge and credit counseling agency. In order to obtain a discharge in a Chapter 13 an individual must not have been granted a discharge in a Chapter 7 bankruptcy in the previous 4 years or been granted a Chapter 13 discharge in the last 2 years.
The primary advantage of a Chapter 13 filing over a Chapter 7 filing is that a debtor by paying a portion of his or her pre-bankruptcy debts over the life of the Chapter 13 plan can obtain a discharge of the unpaid balances while retaining all of their asset, avoid foreclosure of a home and more debts are deemed dischargeable in a Chapter 13 verses a Chapter 7.
The disadvantages to a Chapter 13 verses a Chapter 7 is that the filer will have to pay something to unsecured creditors, a reduced amount against entire debt. However in a Chapter 7 filing it could result in a discharge from most or all pre-bankruptcy obligations without any payments. Another disadvantage to a Chapter 13 is that a discharge will not be received until all payments required by the plan are done whereas a Chapter 7 debtor will usually receive a discharge in three to five months from filing.
It is essential that when trying to figure out if bankruptcy is the right option to contract an attorney to discuss the entire matter, review your current financial situation, determine what is most important to keep and let go and decide which is the best plan for their situation.
Article Source: http://www.articlesbase.com/finance-articles/the-difference-between-chapter-7-and-chapter-13-of-the-bankruptcy-code-624712.html
About the Author
The forgoing article about bankruptcy choices was drafted by The law office of Goldstein and Clegg, LLC, a debt relief agency. More information can be found on their blog, http://www.goldsteinandclegglaw.com/bankruptcy_blog
What should i do? File Bankruptcy or try a non profit credit counseling service?
i just turn 25 with horrible horrible credit low 400′s. I already cant get anything? have alot of debt maybe between $15000-$20000
Need recommendation for a legitimate pre-bankruptcy credit counseling service?
I hear and read that there are a lot of scary companies out there looking to rip people off and make their situations even worse, including some of the so-called “non-profits.” Just need a company that will do straightforward credit counseling that meets the bankruptcy court’s pre-filing requirement. Thanks in advance.
Ideally, online.
And does not cost an arm and a leg.
How did consumer credit counselors become a mandatory part of the bankruptcy process?
In 2005, it became the law in the United States that before a person could file for bankruptcy protection, they needed to complete consumer credit counseling.
I am very interested in reading a case study about how they (the consumer credit counseling industry) pulled this off. I have a cursory understanding of the issue – the arguments, the changes to non-profit status, etc… so I don’t want just some high level, overview. I am much more interested in the steps and arguments they used to accomplish this.
Is this true about Consumer Credit Counseling Service INc ? please read?
OK, I would really appreciate if only people how know the true answer, will give answers as this is an important question for me and I need to know THE TRUTH. Someone at a local mortgage company told me that if I go to Consumer Credit Counseling Service and start working with them on my credit report, to fix things, this mortgage company person said the credit bureaus see this as me almost filing bankruptcy . I have never ever heard this and I want to know if this mortgage person is telling me the truth, I don’t think so because I have worked a little with Consumer Credit counseling service before ( the non- profit one, where we don’t pay anything, I think it is funded by the government). anyhow, I never understood it to be a ” bad’ thing to do, to work with them What do you who are experienced in dealing with credit repair know ? I know there are a zillion places could sign up for money , but i don’t mean any of those places. Hope this is clear enough;)
Biased advise from Consumer Credit Counseling Services (CCCS)?
I have always had concerns in referring people to this service. Consumer Credit Counseling Services is not a true non-profit like the Red Cross. It is a non-profit that’s created, funded and supported by the credit card industry.
For those who have gone through this program: Did you get the feeling that they were really an advocate for your credit card companies instead of you? Did they try to discourage you from filing for bankruptcy even though your debt was overwhelming and you felt that you should?
It depends on what exactly you are trying to do.
If you file bankruptcy, your debts get wiped clean…but your credit score looks terrible for a couple of years.
If you go to a credit counselor, you will still be in debt and surviving from paycheck to paycheck for the next 10 years. Your credit score will still suck.
Doesn’t seem like that complicated of a decision.
You can try greenpathbk.com That’s who I used, the usual fee is 50.00 for the first half and 50.00 for the last half after you have your 341 Creditors Meeting. You can do the credit counseling right over the phone.
Good Luck!
Apparently it was the credit CARD industry rather than the credit COUNSELING industry that got this requirement into the 2005 bankruptcy reform law.
The credit CARD industry (erroneously) painted a picture of people who file bankruptcy as irresponsible and lacking in financial management skills. (Actually, most people who file bankruptcy have recently experienced one of the following problems: illness, job loss, disability or divorce.)
Here is an interesting article by a bankruptcy attorney that touches on this topic:
http://www.bankruptcylawnetwork.com/2007/04/06/why-i-hate-pre-bankruptcy-credit-counseling/
I haven’t been through it, but the company I used to work for used to get calls from them all the time, offering $10 a month payment on behalf of the people who owed us money, and then asking us to contribute $10 per payment as well. Hmmmm – we refused as it seemed that they were asking the company to accept $10/mo payment and then the company pays the CCCS for the privilege.
But one thing I am pretty sure of is that they do discourage people from filing bankruptcy, yet the sad thing is that even if you do go with them and have them arrange low payments for you, you still get a bad credit rating/report, just as if you had filed bankruptcy. So …… which is the obvious choice?
- It’s not the purpose of CCCS to “fix” your credit….It’s a non profit debt management plan that was created by the credit card industry to help people who are financially struggling and are on the verge of bankruptcy. This is a program for people who are struggling to keep payments current on their credit cards…if this does not describe you then it’s a waste of time enrolling in this program.
- When you enroll in the CCCS prrogram, your credit report will be updated to “enrolled in debt management.” This does not damage your credit, but it may make it difficult to obtain new credit while you are enrolled in their program….so don’t use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would might be denied while you’re enrolled in the CCCS debt management program. It’s not on the same level of bankruptcy…but if this is noted on your credit report then it would cause issues for qualifying for a mortgage.
- If you want to “fix” your credit for a mortgage, pull your credit report and pay off listed defaults…offer to settle @20% and go from there. Get all terms in writing prior to paying