Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.
When you're researching bankruptcy, it's essential to know the different types available. The goal of each type is to help you receive debt relief by discharging your debts. However, the type of bankruptcy you choose can impact your assets and the length of time it takes to discharge your debts.
Let's dive into the two primary types of bankruptcies:
- Chapter 7 Bankruptcy: This type of bankruptcy is more expensive upfront, but it can help you save your property. With Chapter 7, the discharge process typically takes around 120 days.
- Chapter 13 Bankruptcy: This type of bankruptcy is less expensive upfront, but the discharge process can take anywhere from 3 to 5 years. With Chapter 13, you can keep your property, but you'll need to make regular payments to your creditors.
Now that you know the two primary types let's discuss the process and the pros and cons of each. By providing this information, we hope to help you make an informed decision.
If you're curious about which type of bankruptcy you may qualify for and the estimated cost, check out our calculator below:
What are the Different Types of Bankruptcies?
Bankruptcy is a legal process that aims to reduce or eliminate the debt of those who cannot afford to repay it in full. However, not all bankruptcies apply to everyone. In fact, there are five different types of bankruptcies, namely Chapter 7, Chapter 13, Chapter 11, Chapter 12, and Chapter 15.
Chapter 7 and Chapter 13 are the most common types of bankruptcies for consumers. Chapter 7, also known as "For Liquidation," involves the sale of a debtor's non-exempt assets to pay off creditors. On the other hand, Chapter 13, also known as "Repayment Plan," allows a debtor to keep their assets while they repay their debts over a period of three to five years.
While we will focus on Chapter 7 and Chapter 13 bankruptcies, there are dedicated resources available for the other types of bankruptcies. If you are interested, you can learn more about Chapter 11 bankruptcy, which is typically used for large reorganizations, or Chapter 12 bankruptcy, which is designed for family farmers. Additionally, Chapter 15 bankruptcy is used for foreign cases.
Understand The Chapter 7 Type of Bankruptcy:
Chapter 7 bankruptcy is a popular choice among individuals due to its lower bankruptcy attorney fees, quick discharge of most unsecured debt within 90 days, and the ability to get back on one's feet relatively quickly. However, some people do not opt for Chapter 7 bankruptcy because they either do not qualify for it or they own too much equity in their home.
If you owe more on your home than the state's homestead exemption allows, you may be at risk of losing your home if you choose Chapter 7 bankruptcy. For instance, if your home is worth $400,000, and you owe $200,000 on it, but your state only allows a $50,000 exemption, you're $150,000 above the exemption. There are ways to keep your house in bankruptcy, but it's important to understand the general process.
To keep your home, you may have to pay the trustee the difference between the exemption and the equity. Alternatively, you can file for Chapter 13 bankruptcy, which allows you to keep your home but requires you to pay off your debts over a period of 3-5 years. Ultimately, the decision to file for bankruptcy depends on your unique financial situation, and it's important to consult with a bankruptcy attorney to determine which option is best for you.
Chapter 7 Bankruptcy Qualification
Let's talk about Chapter 7 bankruptcy qualification. Basically, the Chapter 7 bankruptcy qualification is all about means testing. In other words, it determines whether you have the ability to pay back some of your debt or if it should all be forgiven.
So, how does it work? Well, the first step is to calculate your household size, location, and income. However, things can get more complicated if you have a spouse or if you make more than your state's means test.
Many people have been wondering whether they qualify for Chapter 7 bankruptcy. That's why we created a bankruptcy means test calculator that uses your state's data to help you estimate your qualification.
If you're just starting your review, we suggest choosing the "compare all of your options" and "select analyst review" options (see screenshot below). This means you want to explore all of your debt relief options and get a free review of your data.
Chapter 7 Bankruptcy Cost
If you're considering filing for Chapter 7 bankruptcy, it's important to understand the costs involved. There are two primary costs:
- A Chapter 7 filing fee of $335
- Bankruptcy attorney fees that vary by state and location
While there are cheaper ways to file for bankruptcy, it's important to be cautious about which option you choose. Some companies may promise extremely low fees or even free filing, but it's important to do your research and make sure you're working with a reputable provider.
Chapter 7 Bankruptcy Process
So, you've done your research and estimated your Chapter 7 bankruptcy qualification and potential cost. That's great! Now, it's time to dive into the Chapter 7 bankruptcy process so you can know exactly what to expect. Let's take a quick look at your obligations if you decide to file for Chapter 7 bankruptcy. If you're ready to file, we also have an in-depth article on the Chapter 7 bankruptcy process.
1. Analyze your debt.
When it comes to Chapter 7 bankruptcy, it's important to understand that not all debts can be wiped out. For instance, recent tax debt, most student loan balances, and child support obligations are not dischargeable. Additionally, if you pledged collateral for a loan, the creditor has the right to take control of the property if you're behind on payments at the time of filing for bankruptcy or after your case.
While Chapter 7 bankruptcy can provide relief for many people struggling with overwhelming debt, it's not a one-size-fits-all solution. It's crucial to consult with a bankruptcy attorney to understand the benefits and challenges of filing for Chapter 7 bankruptcy in your specific situation. By doing so, you can make an informed decision about whether Chapter 7 bankruptcy is the right choice for you.
2. Determine your exempted properties
Did you know that when you file for chapter 7 bankruptcy, there are certain laws in each state that dictate which of your assets you can keep? These laws vary from state to state, and they're designed to ensure that you're not left completely destitute after filing for bankruptcy.
While these laws can be a lifesaver for some people, they can also be a challenge to navigate. It's important to understand what you're allowed to keep and what you'll have to give up, so you can plan accordingly and make the most of this difficult situation.
3. Check if you’re eligible
Before you can qualify for a discharge, you might need to take and pass the bankruptcy means test.
The test assesses your income and expenses to determine whether you qualify for Chapter 7 bankruptcy or if you must pay back some of your debts through a Chapter 13 repayment plan.
Passing the means test can be a challenge, but it's a crucial step towards achieving financial stability. By taking the test, you can determine your eligibility for bankruptcy relief and start working towards a debt-free future.
4. Reaffirm or redeem secured debts
If you've used your property as collateral for a loan, you'll need to keep making payments to your creditor even if you file for Chapter 7 bankruptcy. But don't worry, you'll have options. When you file for bankruptcy, you'll be given the choice to either reaffirm the debt and continue making payments to the creditor, or redeem the property by paying off the creditor in one lump sum. Both options have their benefits and challenges, so it's important to carefully consider which one is right for you.
5. Fill out all necessary bankruptcy forms
When filing for chapter 7 bankruptcy, you'll need to provide the court with detailed information about your financial situation. This includes filling out several pages of documents that outline your income, expenses, properties, debts, and prior transactions. Additionally, you'll need to disclose any transactions that occurred on your property up to ten years before filing for bankruptcy.
While this may seem like a lot of work, it's essential to be thorough and accurate in your documentation. Providing complete and honest information can help ensure a smooth bankruptcy process and increase your chances of a successful outcome.
6. File the forms and pay all necessary fees
When you begin your bankruptcy case, the first step is to file your petition. Most people submit all the required forms at once, but if you're short on time, you can opt for emergency filing by completing only the necessary documents. Along with your petition, you'll need to pay a filing fee. You can choose to pay the fee all at once or in up to four installments.
If you can't afford to pay the filing fee, you can apply for a waiver. The judge will review your application and grant the exemption if you meet the necessary qualifications. Check out this resource for more information on exemptions.
7. Submit your document to a bankruptcy trustee.
So, you're filing for bankruptcy? It's important to know what to expect from the process. One key player you'll encounter is the bankruptcy trustee. Their job is to make sure that the information you've provided is accurate. That means you may be asked to send over some documents, like tax returns and profit and loss statements, to back up your claims. It may seem like a hassle, but it's all part of the process to ensure fairness and transparency.
8. Act on your secured debt
Before your bankruptcy case can be finalized, you will need to follow through on any promises you made regarding secured debt in your bankruptcy forms. This means that if you stated that you would return a property to the lender, you will need to make sure that it is available for them to take back.
It's important to take these actions seriously, as failing to do so can result in legal consequences and potentially harm your credit in the long run. However, by fulfilling your obligations, you can move forward with a clean slate and begin rebuilding your financial future.
9. Get your discharge
Good news! If you successfully file for bankruptcy, the court will give you an order relieving you of all qualifying debt. This means that once you receive this discharge, your creditors cannot demand payment from you anymore. You are finally free from your debts!
Pros and cons of Chapter 7 Bankruptcy
So, you're considering Chapter 7 bankruptcy? It's important to weigh the pros and cons before making a decision. Here's what you need to know:
On the upside, Chapter 7 bankruptcy allows you to discharge most of your unsecured debts, such as credit card bills and medical expenses. This means you won't have to pay them back, giving you a fresh start financially. Additionally, the process is relatively quick, usually taking only a few months to complete. And, once the bankruptcy is discharged, creditors can no longer harass you for payment.
However, there are also some downsides to consider. For one, not all debts can be discharged through Chapter 7, such as student loans and tax debts. Additionally, the bankruptcy will remain on your credit report for up to 10 years, which can make it difficult to obtain credit or loans in the future. It may also impact your ability to rent an apartment or get a job, as some employers and landlords view bankruptcy negatively.
Ultimately, the decision to file for Chapter 7 bankruptcy is a personal one that should be made after careful consideration and consultation with a bankruptcy attorney.
Pros
If you're struggling with debt, filing for Chapter 7 bankruptcy may be a viable solution. Here are some benefits:
- You can often receive debt relief within just 90 days of filing, providing quick relief from financial stress.
- Chapter 7 bankruptcy is typically the most affordable option, making it accessible to those with limited financial resources.
- You may be exempt from taxes on any unpaid debt, reducing the overall amount you owe.
- Most unsecured debt, such as credit card debt and medical bills, can be eliminated through Chapter 7 bankruptcy.
- The success rate of Chapter 7 bankruptcy is high, meaning that those who file for it are likely to see the process through to completion.
While Chapter 7 bankruptcy can provide significant relief from debt, it's important to understand the potential challenges and drawbacks as well. Consulting with a bankruptcy attorney can help you determine if this option is right for your unique financial situation.
Cons
Filing for chapter 7 bankruptcy is a serious decision that can have long-lasting effects on your financial future. This type of bankruptcy will remain on your credit report for a decade, which can significantly harm your credit score. Unlike chapter 13 bankruptcy, you must meet certain requirements to qualify for chapter 7 bankruptcy.
If you do file for chapter 7 bankruptcy, it may be challenging and more expensive to obtain credit in the future. Additionally, some of your assets may need to be sold to pay off creditors since there is no protection for properties beyond the state exemption amount. It's important to keep in mind that your bankruptcy will also be made public record. While chapter 7 bankruptcy may provide relief from overwhelming debt, it's crucial to consider the potential drawbacks before making a decision.
Understand the Chapter 13 Type of Bankruptcy
Are you struggling with debt but don't qualify for Chapter 7 bankruptcy? Don't worry, you may still be eligible for Chapter 13 bankruptcy! The only requirement is that your debt amounts must be under the limits specified for this type of bankruptcy. Here are the current limits for Chapter 13 cases filed on or after April 1, 2019:
- $419,275 for liquidated, noncontingent unsecured debts
- $1,257,850 for liquidated, noncontingent secured debts
It's important to note that these limits are subject to change and are set to be revised on April 1, 2022. By filing for Chapter 13 bankruptcy, you can restructure your debt into a manageable payment plan and avoid the liquidation of your assets. It's a great option for those who want to regain control of their finances and start fresh.
Chapter 13 Plan Payment
If you're struggling with debt and unable to qualify for a Chapter 7 bankruptcy, there's another option you may want to consider: Chapter 13 bankruptcy. This type of bankruptcy involves a 3-5 year payment plan where you'll need to pay your disposable income to a trustee. By doing so, you'll be able to pay off some of your unsecured creditors before your debt is discharged.
If you're considering filing for Chapter 13 bankruptcy, it's important to have an idea of how much your plan payment will be. To estimate this, you can use a bankruptcy form called "Chapter 13 Calculation of Your Disposable Income". However, this form can be complex to navigate. That's why we've created a Chapter 13 calculator that mirrors the bankruptcy form. Simply click on the link below to get started:
Chapter 13 Bankruptcy Process
So, you're considering filing for Chapter 13 bankruptcy? Let's break it down for you.
1. Take and complete a credit counseling course
Before filing for Chapter 13 bankruptcy, it's important to complete a credit counseling course from an approved course provider. The US Trustee's office maintains a list of approved providers. It's essential to complete this course at least six months before filing for bankruptcy. This course will help you understand the bankruptcy process, evaluate your finances, and explore alternative solutions to bankruptcy. By completing the course, you'll be better equipped to make informed decisions regarding your financial future.
2. Prepare the proposed Chapter 13 plan and fill necessary forms
When filing for Chapter 13 bankruptcy, there are several important steps you must take. First, you need to complete the necessary schedules, bankruptcy petition, and other relevant forms. This includes disclosing all your debts, property transfers, income, property, and more. It may seem like a lot of information, but it's crucial to be thorough in order to ensure the success of your case.
One of the most important aspects of your Chapter 13 case is drafting and submitting a proposed repayment plan. This plan outlines how you will repay your debts over a period of three to five years. It's important to work closely with your bankruptcy attorney to create a plan that is feasible and meets the requirements of the bankruptcy court.
When filing your bankruptcy petition, you must also provide proof that you have filed tax returns in the last four years. This is a requirement for all bankruptcy cases and helps ensure that all parties involved have a clear understanding of your financial situation.
While the process of filing for Chapter 13 bankruptcy can seem overwhelming, it's important to remember that it can provide significant benefits, such as the ability to keep your property and repay your debts over time. Working with an experienced bankruptcy attorney can help ensure that your case is successful and that you can move forward with a fresh financial start.
3. Submit your document to a bankruptcy trustee
Once you file for bankruptcy, the court will appoint a bankruptcy trustee to oversee your case. Their job is to carefully examine your financial situation and ensure that your bankruptcy plan aligns with legal requirements. This includes monitoring your monthly income, expenses, and debt payments. The trustee will also communicate with your creditors, informing them that you have filed for bankruptcy and halting any collection efforts. By taking on these responsibilities, the trustee helps to streamline the bankruptcy process and ensure that everyone involved is following the rules.
4. Make payments in accordance with your repayment plan.
Did you know that you're required to start repaying your debts just one month after submitting your repayment plan, even if the court hasn't approved it yet? That's right! It's important to stay on top of your payments to avoid falling behind and potentially facing further consequences. So, be sure to plan accordingly and make those payments on time.
5. Meet with creditors and attend the confirmation hearing
When you file for bankruptcy, you'll need to attend a meeting with your bankruptcy trustee and creditors. This meeting is commonly known as a 341 meeting, named after the section of the bankruptcy code that requires it. During the meeting, your trustee and creditors will ask you questions about your financial situation and the documents you've provided. It's essential to be honest and transparent during this meeting to ensure a smooth bankruptcy process.
After the 341 meeting, you and your attorney will attend a confirmation hearing in court. The court will ask your creditors to present any objections they may have to your bankruptcy plan. This hearing ensures that your creditors have a chance to voice their concerns and that your bankruptcy plan is fair and reasonable.
6. Complete your financial management class
Before you can successfully conclude your Chapter 13 bankruptcy case, you must complete a debtor education class. It's important to note that this class is not the same as the credit counseling course you took in the first step. The debtor education class is designed to teach you how to manage your finances and avoid future financial difficulties. By completing this course, you'll gain valuable knowledge and skills that will help you maintain financial stability in the long term.
7. Get your discharge.
Once you complete your repayment period, the court will grant you a discharge.
This means that you will no longer be obligated to pay off your debts, and they will be considered legally resolved.
However, it's important to note that not all debts are dischargeable, such as student loans and taxes. It's crucial to consult with a bankruptcy attorney to understand which debts can be discharged and which cannot.
Pros and cons of Chapter 13 bankruptcy
Chapter 13 Bankruptcy Pros:
If you're considering filing for bankruptcy, you may be feeling overwhelmed and unsure of what to expect. However, there are several benefits to filing for bankruptcy that you should be aware of. Firstly, it's important to note that your assets are not at risk of being sold when you file for bankruptcy. This means that you can protect your possessions and belongings from being seized by creditors. Additionally, there is no income test required to apply for this type of bankruptcy. This means that you can file for bankruptcy regardless of your income level, making it an accessible option for many people. Filing for bankruptcy also provides legal protection against creditors. This means that your creditors will not be able to harass or sue you for unpaid debts. Furthermore, filing for bankruptcy also provides property protection against creditors. This means that your home and other valuable assets will be protected from being seized by creditors. Finally, there are no taxes on unpaid debt when you file for bankruptcy. This means that you won't have to worry about paying taxes on any debts that are discharged through the bankruptcy process. Overall, while filing for bankruptcy can be a difficult decision to make, it can provide significant benefits and protections for those struggling with debt.
Chapter 13 Bankruptcy Cons:
Filing for bankruptcy can have long-lasting effects on your financial health. Once approved, it remains on your credit record for seven years, which can significantly damage both your credit report and score. This can make it challenging to access credit in the future, as lenders may view you as a high-risk borrower.Additionally, filing for bankruptcy often means you are locked into a payment plan with limited flexibility. The length of time for this plan can range from 3-5 years, during which you must make regular payments to pay off your debts. This can be a difficult and stressful process, especially if you experience any unexpected financial setbacks.
It's also important to note that filing for bankruptcy is a matter of public record. This means that anyone can access this information, including potential employers and landlords. This can potentially harm your chances of securing employment or housing in the future.
While bankruptcy may provide relief from overwhelming debt, it's essential to consider the potential long-term consequences before making this decision. Seeking advice from a financial professional can help you weigh the benefits and challenges and make an informed decision.
Should I do Chapter 7 or Chapter 13?
Are you struggling with debt and considering filing for bankruptcy? It's important to know your options before making a decision. One of the first questions you'll need to answer is whether to file for Chapter 7 or Chapter 13 bankruptcy, or explore an alternative to bankruptcy altogether.
Each type of bankruptcy has its own costs, benefits, and drawbacks, so it's important to weigh them carefully. To help you make an informed decision, you can use a bankruptcy calculator to compare Chapter 7 and Chapter 13, and get a better idea of the cost estimates for each option. Additionally, you may want to consider scheduling a free consultation with a bankruptcy attorney who can guide you through the process and help you make the best decision for your specific situation.