Chapter 7 vs Chapter 13, Your Bankruptcy Options
Chapter 7 Bankruptcy helps you eliminate debt and make a fresh start. Chapter 13 Bankruptcy can give you a chance to repay your debt so you can save your home and valuable assets.
You have a legal right todebt relief, which incudes filing for Bankruptcy.
Both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy offer immediate financial relief from debt collections through the Automatic Stay. Once you file for Chapter 7 or Chapter 13 Bankruptcy, your creditors are by law, not allowed to contact you for any debt collection purposes. This includes money owed for your mortgage, car payments, credit cards, any type of unsecured loan including payday loans, or medical debt. Lenders, mortgage holders, collection agencies, or anyone else attempting to collect a debt from you, are all barred by law from contacting you as a debtor to collect, settle, or renegotiate debt. And while not all debts are dischargeable, such as student loans and money owed to the IRS, any collection activities and required payments are temporarily suspended.
Chapter 7 Bankruptcy and Chapter 13 Bankruptcy both require Credit Counseling. Your Bankruptcy case won't be discharged and can even be dismissed if you don't provide a certificate of having completed your Credit Counseling and Debtor Education courses to the Bankruptcy Court. Chapter 7 Bankruptcy and Chapter 13 Bankruptcy require a 341 Meeting, also known as a Meeting of the Creditors. In most cases, creditors are unlikely to show up but you will have to meet with your assigned Bankruptcy Trustee.
You will have to provide information about all of your assets, debts, open accounts including retirement accounts, income, and possessions when filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. The purpose under bankruptcy law isn't to seek assets or possessions of yours to be sold, but more so assess whether you would be better off with Chapter 7 or Chapter 13, largely based on your ability to pay back your debts. Both Chapter 7 and Chapter 13 Bankruptcy have exemption allowances that protect and a keep most, if not all, of your assets and personal property. These are meant to protect you as a bankruptcy filer.
Both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy have their advantages, which one is better for you depends on your circumstances. Your income, assets, debt to income ratio, and type of debt you owe will help you determine which is best for your situation.
How are Filing Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Different?
In general, Chapter 7 Bankruptcy is best for people who don't own a home but continue to accumulate debt that outpaces and in some cases, can exceed their income. This would include unsecured debt such as credit card debt, medical debt, personal loans, and payday loans. Chapter 7 can also help if you are behind in your auto loan, which is a secured debt.
Chapter 13 Bankruptcy would likely be better for you if you own a home, are behind on your mortgage payments, but still want to keep your home. Chapter 13 offers the opportunity to catch up on your debts and keep your home through a repayment plan.
In order for you to be approved for a Chapter 13 repayment plan you must show that you have a sustainable income so the trustee can see that you are able make payments under the plan. For this reason, Chapter 13 Bankruptcy is known as the "wage earner's bankruptcy".
Chapter 7 offers a fresh start by eliminating unsecured debt. If you're debt continues to grow, outpacing your ability to keep up, Chapter 7 Bankruptcy can offer a clear path out by having your unsecured debt discharged. This can be especially so when it comes to taking out personal or even payday loans to keep up with existing debts or payments.
Being behind on your car payments can be scary, especially if you are in danger of having your car repossessed or have had a car repossessed in the past. In some cases there may be late fees added to your account or maybe you have already extended your loan to get current on your car loan but this adds to your balance and the amount of interest you are paying.
Very often, the worst case scenario is when you fall so far behind that you will still owe thousands to the lender even after the term of your loan ends. By then, the car will have depreciated in value considerably and may be in need of repairs, especially if you are making payments on a used car.
If you are not too far behind in your car payments, your car is still in good condition, and it still holds some value, you will have the opportunity to catch up on your payments during the Automatic Stay and resume making your payments. If you intend on keeping your car, you can reaffirm the car loan and arrange to catch up on your past due amounts and resume your regular monthly payments. In a Chapter 13 Bankruptcy you would be able to have your car payments included in your Chapter 13 repayment plan.
The reaffirmation agreement will be sent to you and your attorney. In some rare cases a lender will agree to renegotiate the loan with a lower balance, interest rate, or payment, but in most cases they will hold you to the terms of the original loan, especially for a Chapter 7 Bankruptcy.
You should be aware that since a car loan is a secured debt, meaning that the car itself is collateral, the lender or loan servicer can still repossess the car if you choose not to reaffirm the car loan. But either way, by filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy you can halt the repossession process which will buy you time so you can figure out what to do.
Should I Keep Making Payments On My Car Under Chapter 7 Bankruptcy?
If have extended the payment period of you car and it appears that you will continue to owe money when the term of your car loan ends, you may want to consider surrendering it and arranging to drop off your car or have it picked up by the lender or loan servicer. You may especially want to consider this option if in addition to owing well more than the car is worth, the car has high mileage and is in need of repairs.
The advantage of choosing to surrender your car in addition to no longer making on a car of little value and in need of repair, is that any debt related to the loan including the remaining balance, late fees, accrued interest, collection or repossession fees, are all discharged in a Chapter 7 Bankruptcy. This way, you can walk away from the car and the many expenses attached to it.
If you are wondering how you will get around without your car, there are options available. With the Automatic Stay in place, you will notice that you are keeping more of your paychecks. If possible, you can set a little bit aside to purchase a used car for cash or to make a down payment on a late model used car. There are in fact lenders who are willing to work with people in bankruptcy or after discharge to finance a used car. The interest rate will not be preferable, but if you can make your payments on time, they get reported to the credit bureau which helps you to repair your credit. On time payments can eventually lead to lower interest rates on future loans and purchases.
Chapter 7: Credit Cards, Personal Loans, And Payday Loans
If you're credit card debt is growing faster your ability to pay it back, or you have high interest personal loans that become more difficult to pay back, you do have options. In some cases you try to consolidate or renegotiate your loans. This usually works best with the assistance of a credit counseling agency. If you can make this option work, it may be helpful in lowering your overall debt.
But lenders and loan servicers aren't always willing to negotiate as your debt level continues to rise. This goes even more so for payday loans. If you have found yourself having to resort to payday loans, you are most likely keeping much less of your paychecks. To make matters worse, payday lenders are notoriously reluctant to ever renegotiate the terms of your loan or offer any sort of reduced or delayed payment options.
If you file for Chapter 7 Bankruptcy however, any and all collection activity will be immediately halted. This includes attempts to renegotiate or settle any or your debt. Once you file, they cannot contact you for any of these purposes. Additionally, if you have a bankruptcy attorney, any communication from your creditors must go through your bankruptcy attorney,
Chapter 7 Bankruptcy: Will I Have to Sell My Possessions To Pay My Debt?
In almost all cases, filers for Chapter 7 Bankruptcy never have to sell off anything.
In fact, Chapter 7 is designed to prevent such an occurrence, especially when it comes to your most basic needs such as clothing, furniture, and appliances. Sometimes Chapter 7 Bankruptcy is referred to as a liquidation of assets, meaning property belonging to you can be sold to pay off debt. You should be aware however, very few Chapter 7 cases involve the selling of assets, or personal belongings. There is a means test that calculates your debt to income ratio and takes into consideration your personal income. An experienced bankruptcy lawyer could give a good idea of whether you would meet the means test.
Save Your Home, Property, and Assets With Chapter 13 Bankruptcy
If you are behind on your mortgage or even in foreclosure, Chapter 13 Bankruptcy will not allow any foreclosure, sale of your home, repossession, or eviction to take place. If you are making payments on your car, or any other secured property, Chapter 13 protects any type of repossession. Payments on your car can be included in your repayment plan as well.
Your Repayment Plan Under Chapter 13 Bankruptcy
Chapter 13 Bankruptcy gives you the opportunity to create a repayment plan so you can preserve your home and assets.
Unlike Chapter 7, Chapter 13 Bankruptcy is designed to have you pay back as much of your debt as possible. Bankruptcy law requires that all of your disposable income go towards your repayment plan. The repayment plan lasts anywhere from 3 to 5 years. Disposable income is the income that is left over after your essential expenses such as food, rent or mortgage, transportation, insurance, childcare costs, and educational expenses.
Chapter 13 Bankruptcy and Bankruptcy Court
The plan must be approved by the Bankruptcy Court and is overseen by a Bankruptcy Trustee. If the plan is approved, you will make monthly payments to the trustee overseeing your case.
One of the most significant benefits of Chapter 13 Bankruptcy is the ability to keep your home.
It is a commitment to stay with the payment plan for 3-5 years but when it's over, you still have your house that you have worked hard to own and maintain. Even if you are in foreclosure and your house is up for auction, Chapter 13 will stop the process allowing you to keep, and stay in your home as you submit and maintain your bankruptcy repayment plan.
Are You Facing Foreclosure in Alabama? Chapter 13 Bankruptcy Can Stop It
If you live and own a home in Alabama, it is important for your to be aware that Alabama is a non-judicial foreclosure state. This means that your lender or mortgage holder does not need a court order to foreclose on your home and put it up for auction. So if you are behind on your mortgage payments and in danger of foreclosure, you may need to act quickly to stop the process, or even head it off before it begins. In fact, there are few other foreclosure defenses in Alabama than for filing for Chapter 13 Bankruptcy. You should contact a bankruptcy lawyer as soon as possible if you're facing, or in, foreclosure.
The Walker Law Firm has experience with Chapter 7 Bankruptcy and Chapter 13 Bankruptcy, and we offer a free consultation!
If you are considering filing for bankruptcy, you may have gotten an idea as to whether Chapter 7 Bankruptcy or Chapter 13 Bankruptcy would be right for you. If you are uncertain whether to file for bankruptcy, whether Chapter 7 vs Chapter 13 is right for you, or have any other questions on bankruptcy, contact an experienced bankruptcy lawyer. We offer a free consultation so you have nothing to lose by contacting us. Don't wait for an unpleasant surprise to arise, contact us today!