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At The Pearman Law Firm, we can assist in the preparation and filing of Chapter 7 and Chapter 13 Bankruptcies.
Chapter 7 Bankruptcy is a one time liquidation of debt. When a Chapter 7 is file, all debts and assets become a part of what is called the “Bankruptcy Estate.” Property that is designated as “exempt” is kept by the person filing. Exemptions, or property that you are allowed to keep, are defined by state law. Any “non-exempt” property is sold by the trustee to satisfy creditors. In many cases the person filing is able to keep most, if not all, of their property.
Not all debt is “dischargeable” in a Chapter 7 Bankruptcy, but all debts that are, will be discharged after the Bankruptcy is concluded. Dischargeable debts are those that you will not be responsible for after the Bankruptcy is completed. A Chapter 7 generally takes about five months to complete but it may take a little longer depending on the time it takes the client to gather documents for filing and on the caseload of the Court. It is important to remember that there is an income restriction on filing a Chapter 7 case. In 2005 the Federal Government imported from the IRS Code a test known as the “Means Test.” This test prohibits what are known as “Rich Debtors” from filing for a Chapter 7. If a debtor has an income higher than the median income for a household of the same size in the same County, the debtor, or person filing, may not be eligible to file a Chapter 7. In the event the person wanting to file does not qualify for a Chapter 7, he or she may consider the filing of a Chapter 13.
Unlike a Chapter 7, a Chapter 13 Bankruptcy creates a payment plan for the debtor to repay their debts within 3-5 years. It is similar to the Chapter 11 Bankruptcy that many businesses file but it is intended for individuals and has a cap on the amount of debt that the person filing can have. Generally, a plan is agreed upon between the person filing and his or her creditors. Secured creditors are paid in full or have their accounts made current, while unsecured creditors receive a percent of what is owed them. At the end of the 3-5 year plan, the debtor receives a discharge similar to that in a Chapter 7 but that there are a few more types of debts that are dischargeable. For most people, the Chapter 7 Bankruptcy is preferable to the filing of a Chapter 13. The Chapter 7 is cheaper, faster, and less of a headache. There are however, certain reasons that a person may need to file a Chapter 13. For example, if a person makes too much money, they may not qualify for a Chapter 7 and may be forced to file a Chapter 13. There are also certain “tools” that a person filing can use in a Chapter 13 that can’t be used in a Chapter 7. In a Chapter 13, a person, for example, is entitled by law to come current on debts over the life of the Chapter 13 plan which can be between 3-5 years. Such debts can include: mortgage payments, taxes, student loans, and domestic obligations. In certain circumstances, a person may be able to “strip off” the second mortgage on a house if it is wholly unsecured.
If you are considering Bankruptcy, please give us a call. We will be happy to answer questions you have over the phone at no charge. Please remember that there are many misconceptions and misunderstandings when it comes to Bankruptcy. We recommend that you speak with a licensed attorney that practices Bankruptcy law before making any decisions.
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