Filing Personal Bankruptcy: Chapter 7 or 13?

For the average person, filing personal bankruptcy can be a very scary and frustrating experience.  Many debtors fear they will lose everything they own and that they will never be able to obtain credit again.  The good news, however, is that bankruptcy is meant to give debtors a fresh start.  Although going through bankruptcy is not easy, it certainly does not mean the end of the world.  Many debtors are able to begin rebuilding their credit even before they receive a discharge. 

What is a Chapter Bankruptcy?

A Chapter 7 bankruptcy allows a debtor to wipe out most of his unsecured debt.  This is very appealing to consumers who are struggling to pay their credit cards, medical bills, and other unsecured debt.  However, the Bankruptcy Code makes certain debts non-dischargeable, including: 

• Student loans;
• Certain tax debts; and
• Child support and other domestic support obligations. 

Who Can File a Chapter 7 Bankruptcy?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made it more difficult for consumers to file a Chapter 7 case.  Under the BAPCPA, a consumer must satisfy the Median Income and Means Tests in order to file a Chapter 7 case.  If a consumer does satisfy either of these tests, he will be required to file a Chapter 13 case. 

How Long Does a Chapter 7 Case Take?

A debtor in a Chapter 7 case will usually receive a discharge within about 90 days of the date he filed his case.  However, if a debtor has not paid the filing fee in full or completed the pre-discharge counseling required under the BAPCPA, his case will be dismissed without discharge. 

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy allows a debtor to restructure his debt and repay it over a three to five year period.  In order to file a Chapter 13 bankruptcy, a debtor must meet the following requirements: 

• Have stable and regular income;
• Have unsecured debts of less than $336,900; and
• Have secured debts of less than $1,015,650.

What is a Chapter 13 Plan?

The Chapter 13 plan is at the heart of every Chapter 13 bankruptcy case.  The Chapter 13 plan sets forth the debtor’s proposal for repaying his debts.  A Chapter 13 debtor’s Chapter 13 plan must be feasible otherwise it will not be confirmed.  Among other things, a Chapter 13 plan must commit 100% of a debtor’s net disposable income for payment into the Chapter 13 plan.  The funds paid into the Chapter 13 plan by the debtor will distributed by the bankruptcy trustee to all creditors with allowed claims. 

Getting Legal Help

The Bankruptcy Code is very complex and any debtor wishing to obtain a discharge must strictly adhere to its requirements.  Therefore, it’s imperative to hire a qualified bankruptcy attorney.