Generally speaking, the dividing line between who files for Chapter 7 and Chapter 13 bankruptcy lies in the household median income level for each state. Determined by a means test, filers with household incomes below their state’s median income level usually file for Chapter 7 while those above it end up filing bankruptcy under chapter 13. The specific circumstances of the person filing bankruptcy can blur the line somewhat depending on the assessment of options by the filer’s bankruptcy lawyer.
Chapter 7 Focus: Discharge Debts and Keep Property
In a Chapter 7, a bankruptcy lawyer will usually have two objectives in mind; the first being the discharge of all unsecured debts. The second objective will be to retain as many assets as possible. A Chapter 7 bankruptcy lawyer will assess bankruptcy exemptions in the code to determine whether the debtor will be able to retain assets such as a home, vehicle, and personal effects. There are two schemes which can be used to determine valuations, requiring the expertise of a Ca bankruptcy attorney to fit as many items into the bankruptcy exemption schedule as possible.
Chapter 13 Focus: Low Payment Plan and Foreclosure Defense
If a filer makes more than state median income or has more than just the basic assets to be retained, a Chapter 13 bankruptcy will be the proper path. Here, a Chapter 13 bankruptcy attorney has much more flexibility in terms of assets which can be retained through the bankruptcy exemption schedule. The end result of a Chapter 13 bankruptcy is the agreement between the debtor, bankruptcy court and the creditors listed in the bankruptcy petition on a payment plan designed to pay back balances at approximately 25 cents on the dollar. As originated by the Chapter 13 bankruptcy attorney, the payment plan can include missed mortgage payments and a variety of other secured and unsecured payments. Payments plans are usually set up to last approximately 5 years.
Solutions Unique to Chapter 13
Filing bankruptcy under Chapter 13, besides more flexible treatment of the debtors’ assets also provides advantages in terms of subordinated mortgages and payments on vehicles. Both provide the best results when navigated by a Chapter 13 bankruptcy attorney. A Chapter 13 allows for lien stripping, which can either eliminate or greatly reduce the amount owed on a subordinated mortgage if the property’s value has dropped below the balance owed on the first mortgage. In this situation, the mortgage is technically unsecured and become re-classified by the court as “wholly unsecured”. The subordinated mortgage is then treated much like credit card or other unsecured balances.
In an auto cram down, the court will reduce the amount owed on the vehicle to the appraised value of the car. With an extension on the eventual payoff date, a cram down can reduce monthly payments substantially.
At Zhou & Chini, electing for the best bankruptcy choice and then building the best strategy always starts with our offer of a free and confidential consultation with one of our attorneys. At Zhou & Chini, we pride ourselves on delivering customized solutions for your financial issues. To schedule a free consultation, visit zhouchinilaw.com or call (800) 972 9600.
