Which Chapter of Bankruptcy Should You Choose?

Once you make the decision to file for bankruptcy to have a fresh start to your financial life, you must decide which Chapter you should file under.  A New York bankruptcy attorney can assist you in determining the appropriate Chapter to file your bankruptcy case under.

The most common types of bankruptcy filings for consumers are Chapter 7 and Chapter 13.  Each Chapter has different requirements and comes with different consequences.  Filing for the wrong type of bankruptcy may jeopardize the debtor’s property.  As a result, it is important to choose carefully.

Chapter 7 bankruptcy is the most common form of bankruptcy.  In order to qualify for a Chapter 7 bankruptcy, the debtor must not have enough income that they could qualify for a Chapter 13 bankruptcy repayment plan.

If a debtor is unable to repay creditors, the debtor may use Chapter 7.  Chapter 7 is a liquidation proceeding.  The Chapter 7 Trustee sells the debtor’s non-exempt property to satisfy as many creditors as possible.  State law determines what property is exempt or not.  The importance of understanding what property is exempt is another reason it is wise to hire an attorney familiar with the bankruptcy and exemption laws in your state.  Following the liquidation, the debtor is no longer liable for the discharged debts.

Chapter 7 bankruptcy is considered a complete discharge.  However, it is important to note that property can be lost through the Chapter 7 liquidation proceeding when the trustee sells the non-exempt property.  Chapter 7 proceedings tend to last anywhere between 5 to 7 months.

Chapter 13 bankruptcy can be used by debtors who are partially able to pay some creditors.  To be able to file for Chapter 13 bankruptcy, the debtor must be able to show that their debt is under the limits for filling and that the debtor is capable of paying creditors with income or extra money left over after living expenses.  Chapter 13 provides a way for the debtor to restructure their loan agreements and start fresh making new payments under the revised plan.  Chapter 13 is a great alternative to Chapter 7 for eligible debtors, because it allows debtors to keep their property.

Although the debtor may not be able to pay all the creditors in full, the debtor can pay the Trustee who will distribute the payments among the creditors according to the plan.  As long as the debtor makes timely payments, the Chapter 13 bankruptcy can last up to three years.

Choosing the wrong Chapter of bankruptcy can get a bankruptcy case thrown out of court.  In order to avoid making an avoidable mistake, it is best to hire a bankruptcy attorney knowledgeable about the rules of your state, who can advise you on the proper bankruptcy Chapter for you.