Filing personal bankruptcy is meant to give a debtor a fresh start. Any debtor whose debts are primarily consumer debts may file either a Chapter 7 case or a Chapter 13 case.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a debt liquidation plan in which most of a debtor’s unsecured debts will be discharged. Unsecured debts which are not dischargeable in bankruptcy include:
- Domestic support obligations;
- Certain tax debts;
- Student loans;
- Court ordered fines and restitution; and
- Debts incurred as a result of a DUI/DWI.
If a Chapter 7 debtor has secured debts, he must disclose his intention with regard to the property securing those debts. He may either:
- Reaffirm;
- Redeem; or
- Surrender.
To file a Chapter 7 case, a debtor must pass either the median income test or the means test. If the debtor cannot pass either of these tests, he is ineligible to file a Chapter 7 case. However, he may qualify to file a Chapter 13 bankruptcy.
Most Chapter 7 debtors receive a discharge within about 90 days of filing bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows a debtor to consolidate or restructure his debts and pay them over a three to five year period. A Chapter 13 debtor must file a Chapter 13 plan which sets forth his proposal for how he will repay his debts. In order to qualify to file a Chapter 13 case, a debtor must have regular and stable income sufficient to fund his Chapter 13 plan. Additionally, a Chapter 13 debtor may not have liquidated unsecured debts exceeding $336,900 or secured debts exceeding $1,015,650.
In a Chapter 13 case, a debtor must allocate 100% of his net disposable income for payment to his creditors. All creditors who have filed proofs of claim which have not been challenged by the debtor or the bankruptcy trustee may participate in the Chapter 13 plan. If a creditor fails to file a proof of claim within the timeframe prescribed by law, it will be denied the right to be paid through the Chapter 13 plan. Allowed claims are paid in order of their priority as follows:
- Administrative Claims;
- Secured Claims;
- Priority Unsecured Claims; and
- Unsecured Claims.
Whether unsecured creditors are paid anything depends on the composition of the debtor’s Chapter 13 plan and whether there are any monies left for distribution to unsecured creditors after all administrative, secured , and priority unsecured claims have been paid. Whatever is left after these claims have been paid will be distributed to all unsecured creditors with allowed claims on a pro rata basis. Any amounts remaining unpaid on general unsecured debts at the conclusion of the debtor’s case will be discharged.
Getting Legal Help
If you have questions about consumer bankruptcy, you should speak with a qualified bankruptcy attorney in your area. A bankruptcy attorney will review your circumstances to determine whether you are eligible to file a Chapter 7 or a Chapter 13 case and will represent you throughout the case.
