• Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
  • October 5, 2017
  • Depending on your financial condition, you may be eligible for Chapter 7 or Chapter 13 bankruptcy.

    Chapter 7 bankruptcy is for those who fall below a certain defined income level; above this limit, the filing may need to be made under Chapter 13. Chapter 7 also takes less time for completion than a Chapter 13 case. However, if the court finds that your income is enough for a Chapter 13 discharge when you file under Chapter 7, it may dismiss your case or convert it into Chapter 13, changing your actual course of action. Because of the income level difference, many more cases are filed under Chapter 7 than under Chapter 13.

    According to the US Bankruptcy Courts statistics, a total of 46,948 cases were filed under Chapter 7 bankruptcy and a total of 24,575 were filed under Chapter 13 bankruptcy during the one month period ending April 30, 2016.

    Going by state-wide statistics (and not according to Chapter number) the number of bankruptcy filings was 9,036 in the state of Massachusetts (MA) in the year 2016 for the 12-month period ending March 31. 10,853 bankruptcy terminations were noted and 11,416 were pending for the same period.

    Back to Basics: What is Bankruptcy and how is a case made?

    You may need to file for bankruptcy if you are unable to repay your creditors.

    There are different kinds of bankruptcy that are applicable, depending upon your income and the kind of debts incurred.

    Bankruptcy may be initiated by the person you owe the money to, but it is not valid until it is enforced by a legal notice or an order from the court.

    A bankruptcy case is initiated when a debtor is unable to repay debts and declares bankruptcy to gain relief. The debt is then either discharged or restructured and a case is thus conceived.

    There are six kinds of bankruptcy, including different ones for basic liquidation, municipal bankruptcy, rehabilitation or reorganization, etc. Chapter 7 & Chapter 13 are two of these different types.

    Further, bankruptcy is a federal jurisdiction matter. However, though cases are filed in the United States Bankruptcy Court which is adjunct to District Courts, the validity of claims and exemptions also depends upon State laws. State laws differ in terms of exemption amounts that can be seized in repayment of the debt. For example, in the case of Wage Garnishment in California, the exemptions include a minimum 75% of wages paid within 30 days prior to the filing of the bankruptcy. However, in Massachusetts, the law exempts 85% of gross wages or 50 times the minimum wage per week.

    State laws are applicable when you file for bankruptcy in a particular state. Exemptions can differ, for example, if you are filing in Massachusetts, you will also be allowed to use federal exemptions instead of the Massachusetts exemptions.

    A short example of some of the exemptions in Massachusetts are:

    Asset: Personal property

    Exemptions: Bank deposits to $125; food or cash for food to $300; Cash for fuel, heat, water or light to $75 per month; Furniture to $3,000; motor vehicle to $750; Beds, bedding and heating unit; clothing needed; etc.

    Asset: Pension

    Exemptions: Private retirement benefits; ERISA-qualified benefits; Savings banks employees; etc.

    Asset: Wages

    Exemptions: Earned but unpaid wages to $125 per week

    The assets and exemptions listed above are just an example of the exemptions you may expect if filing in Massachusetts.

    A look at Chapter 7 Bankruptcy

    You qualify for a Chapter 7 bankruptcy if:

    • Your income isn’t sufficient to repay your debts.
    • Your current income is equal to or lesser than what a family like yours would earn.
    • Your loan history doesn’t include cheating your creditors or defrauding them in any way, including lying to them about your means of paying back.
    • You have already received a bankruptcy discharge six to eight years ago, depending on the kind of bankruptcy it was.

    Your obligations within a Chapter 7 bankruptcy:

    The assets you own are the authority of the bankruptcy court you filed under. As a result, you cannot sell them off. However, there is also the advantage of the automatic ‘stay’ under this chapter, meaning that no creditor can forcefully take away your assets, such as your car, home, etc. The court will appoint a trustee to your case who will examine your paper and documents to determine how your creditors can be repaid. This examination will include property that is not exempt from bankruptcy and which can be sold off to generate income for the creditors.

    Discharge of your Debts:

    Chapter 7 bankruptcy clears all your debts. The exceptions however are:

    • Child support and student loans will not be cleared.
    • Non-dischargeable debts where the creditor has taken objection to it.

    A look at Chapter 13 Bankruptcy

    You qualify for a Chapter 13 bankruptcy if:

    • You are not a business; business owners can file as individuals.
    • You should have a source of income or sufficient to fund the repayment plan. This can include pension plans, social security, etc.
    • Chapter 13 is a repayment plan. Hence your debt must not be too high.
    • Your income tax filings must be up-to-date.

    Your obligations:

    Chapter 13 bankruptcy means you will pay some of your debts in full, and others in part. A mortgage debt may not need to be paid in full. A past due payment will need to be paid in full through the repayment plan, though. In the case of property tax, you will need to pay past due in full, along with interest. In the case of a car loan, if the balance is due before the Chapter 13 repayment plan ends, you will need to pay it in full.

    Discharge of your Debts:

    Certain kinds of credit card debts, medical loans, personal loans, etc. can be discharged in a Chapter 13 bankruptcy. Breach of contract may also attract a debt which may receive a discharge under Chapter 13.

    Some key differences between Chapter 7 & Chapter 13 bankruptcy

    While both Chapter 7 and Chapter 13 have income as the qualifier, a Chapter 7 bankruptcy deals with basic liquidation for individuals as well as businesses and is also known as a straight bankruptcy. It is also one of the fastest forms of bankruptcy. Chapter 13 deals with rehabilitation through a systematic repayment plan for individuals with a fixed source of income.

    Further, an amendment was made to the Bankruptcy Code in the year 2005. As part of this, the person filing for Chapter 7 bankruptcy has to undergo a ‘means test’ to be eligible. If the person fails, they may need to convert their case to a Chapter 13 bankruptcy or risk having it dismissed altogether.

    A Chapter 13 bankruptcy also allows for discharge of a malicious damage to property debt, certain kinds of divorce or separation debts and some debts incurred to pay taxes.

    Filing for either Chapter 7 or Chapter 13

    You will need to fill out several forms when you finally file for a Chapter 7 bankruptcy. These forms will hold details of your income and living expenses. Details of your property, including that which you can retain and which is exempt, both will be noted.

    You will also need to provide details of the property you have owned and sold or gave away in the past two years.

    Hiring a professional:

    You can filefor bankruptcy in Massachusetts without a professional. However, a professional can help you file for your bankruptcy and guide you through the process. Details of the forms to be filled, deadlines and due dates, how to best present your information in a clear and concise manner, and how to meet your legal requirements, etc. All of these, and other questions pertaining to your case, are best explained to you by a legal professional.

    About Us:

    Legal Rights Advocates, PLLC is a law firm that has helped countless clients receive successful discharges under the different kinds of bankruptcy, including Chapter 7 & 13. Our team of bankruptcy attorneys helps clients in understanding their legal rights better, including managing bankruptcy filings for cases in Massachusetts. Apart from help with bankruptcy matters, we also help stop debt collector harassment in its various forms. Call us at (855) 254-7841 for immediate assistance.