August 23, 2017

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Choosing between Chapter 7 vs. Chapter 13 Bankruptcy

People get into debts due to various reasons – medical bills, loss of job, divorce, underemployment, utility payments, credit card bills, irresponsible expenditures, and bad habits.

A person in debt experiences profound psychological and emotional issues. There is no end to his/her agonies. He worries about his future and loses his peace of mind when he gets constant and aggressive phone calls from creditors and debt collection agencies. He also constantly fears legal action, and steps debt collectors may take against him to recover the money he owes.

Filing Bankruptcy

Filing bankruptcy is the most popular alternative for people and businesses in desperate need of debt relief. The threatening calls and actions from creditors also cease while court bankruptcy proceeding is in effect. If you have hired a lawyer, he will also inform creditors and debt collectors to direct all their calls to him.

The Supreme Court has also informed that the purpose and fundamental goal of the bankruptcy laws is to give a financial “fresh start” to debtors. Under the federal bankruptcy law, a person can file either Chapter 7 bankruptcy or Chapter 13 bankruptcy. A debtor can file bankruptcy independently, or hire a lawyer to file on his behalf.  Both options can help debtors eliminate financial debts. However, hiring a lawyer is beneficial in many ways.

  • Filing bankruptcy is a complex process, and an experienced lawyer can ensure smoother sailing throughout the proceedings.
  • Any errors in your application or filing can get your application rejected, or petition delayed. You are more likely to avoid rejection and delays if you hire a lawyer.
  • Bankruptcy lawyers understand Federal, State, and local court rules.
  • The law also changes and not all cases are same. Experienced bankruptcy lawyers have knowledge about different cases and fully aware of new laws.
  • The lawyer can also inform you if bankruptcy may not be in your best interest.
  • Once you hire a lawyer, he will also stop creditors from harassing you.

Legal advice becomes more important when you are not able to decide the type of bankruptcy that is right for you. A bankruptcy lawyer can evaluate your financial statement and personal property and its value and advise you on your best course of action.

Chapter 7

Chapter 7 bankruptcy protection is for debtors who have no means to repay their debts.  The Bankruptcy Court requires debtors to qualify “means test” for eligibility to file under Chapter 7. If debtor’s current monthly income is higher than the state Median, he/she is disqualified from Chapter 7 advantages and not allowed to file under this Chapter.

When you file Chapter 7 bankruptcy, the law allows you to keep properties that come under the state exemption statute. Only non-exempt properties are sold by the bankruptcy trustee. The sale proceeds are distributed among the creditors. However, bankruptcy law mandates debtors to disclose all properties they own, without exception. The court provides bankruptcy form Schedule A/B: Property to disclose properties owned by the debtors. Once, non-exempt properties are disposed of for cash and creditors are paid, the debtor is relieved from his financial burden. As a result, he has the opportunity for a fresh financial start.

Chapter 13

Chapter 13 bankruptcy is an option available to some debtors to repay their debts. To qualify under this chapter, debtors are not required to satisfy the “means test”. However, you must have a regular, predictable source of income to propose a Chapter 13 plan for repayment. Your income should also be more than State’s Median income.

The approval or disapproval of debtor’s payment plan depends on the Bankruptcy Code requirements during the court’s confirmation hearing. The debtor must pay as scheduled under the plan through the trustee to get a complete discharge of debts. The Bankruptcy Code allows debtors to keep certain property and reorganize their obligations through debt repayment plan – usually three to five years.  While the plan is in progress, the creditors are not allowed to take legal or any other actions against the debtor.

Chapter 7 and chapter 13, both are viable options for many debtors to resolve their financial debt burden, but each chapter offers different benefits and risks. An experienced bankruptcy lawyer can tell you the best option after assessing your financial situation and property of value.

Conclusion

You can also find more about bankruptcy and Wichita bankruptcy lawyers.

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