Depending on your individual circumstances, choosing which kind of bankruptcy to file can be very difficult. Let’s look at some of the factors that may help you make the right decision.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows a person to keep all their exempt assets and discharge their debts. The trustee is appointed to gather all the nonexempt assets, sell those assets, and distribute them pro-rata to the creditors.
Chapter 7 bankruptcy may be your best choice under the following circumstances:
- If all the property you have is exempt under both state and federal bankruptcy laws. In other words, you do not have assets that you will have to give up. Over 90% of all bankruptcy cases are this variety.
- You are current on your home and automobile payments before filing for bankruptcy.
- You are willing to give up your house and automobile before filing bankruptcy.
- You do not have any extra funds left over each month after paying all your expenses. In other words, you don’t have money to reclaim assets like in a Chapter 13 bankruptcy case.
- You don’t have a previously discharge chapter 7 bankruptcy, or chapter 13 bankruptcy in the last eight years.
If you qualify for chapter 7 bankruptcy under the means test and Median test, you give up all your nonexempt assets, and keep those that the law allows. This option gives you a new and clean start without the pressures and anxiety hanging over your head.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to make partial payments to your creditors for 3 to 5 years and obtain a discharge of all your remaining debts. Chapter 13 in many instances will allow you to retain some or all your non-exempt assets, as long as you pay for the value of those nonexempt assets in your Chapter 13 repayment plan. Chapter 13 will also allow for liens and liens strip downs under certain circumstances. Chapter 13 allows “first aid” pursuant to section 362 of the bankruptcy code, in that any foreclosures at the time bankruptcy filing are stayed until future order of the bankruptcy court.
Chapter 13 bankruptcy is probably your best choice under the following circumstances:
if you need time and/or have adequate income to pay passed bills.
- You need time to catch up on back mortgage payments. Chapter 13 repayment plans give you 3 to 5 years to make up your arrears.
- You need time to pay off old tax debt without penalties in interest. This can be a huge savings under some circumstances.
- You need time to pay alimony and child support that is best due.
- You already received a discharge in a bankruptcy case within the last eight years.
- You may be able to reduce payments on unsecured loans to the value of the collateral, and not the full amount of the loan. For example, you may owe $15,000 on automobile, but is currently worth only $10,000. So, you might get relief of the $5,000 difference.
- You will get to keep the nonexempt property by making payments on it through your Chapter 13 repayment plan.
- Any cosigners of your debt would be spared the harassment of bill collectors by making payments through your plan.
- You may back of out of a chapter 13 plan and take another route without the court’s permission. A big part of choosing Chapter 13 depends on your income. Many Chapter 13 repayment plans are proposed with too much optimism. Only about two thirds of Chapter 13 plans are fulfilled. Most of those failed plans are forced into Chapter 7 or the bill collectors come back with a vengeance since you are no longer protected by the bankruptcy automatic stay provisions.
Chapter 11 Bankruptcy
Chapter 11 is your best choice if you have a business and/or substantial assets and want to continue in business. The Chapter 11 also gives you the most flexibility in negotiations. You can also withdraw from the Chapter 11, which would put you back to where you were with creditors before filing.
Chapter 11 filings allow individuals and business entities to file for reorganization, thereby allowing the petitioner to repay their general unsecured debt in their priority unsecured debt such as taxes, and their secured debts over a period, such as five years. Chapter 11 petitions also invoke the provision of 1129(b) Chapter 11 filings are known for “cram downs,” which allows a treatment term and for interest rates to imposed on a security and or unsecured creditors over their objection. Thus, cram down or forced acceptance under certain terms and conditions are set forth in section 1129(a)(b) of the Bankruptcy Code.
The provisions of the Bankruptcy Code governing Chapter 11 filings also allows for repayment of tax debt over a five-year period commencing on the date of assessment. Further, bankruptcy court has the authority under section 507 to determine the validity, extent and amount of tax claims. In the instance of an individual filing Chapter 11, relief or a partial discharge of debt is allowed if the individual debtor contributes to disposable income, over five-year plan.
The best next move is to call an experienced bankruptcy lawyer for a free and confidential consultation, such as Harris Law in Reno, Nevada at (775) 786-7600 or (775) 690-9120 anytime.