Chapter 7 and Chapter 13 Bankruptcy

The two most common types of bankruptcy available in the United States for individuals are Chapter 7 and Chapter 13. It is important to understand the differences between the two.

A Chapter 7 bankruptcy allows you to ask the court to discharge the majority of the debt you owe.  In exchange, the bankruptcy trustee can take the property you own that is not exempt and sell it to repay your creditors. An individual may only apply for Chapter 7 relief once in any eight year period.

Laws differ from state to state, but most states will generally allow you to keep the following types of property in a Chapter 7 bankruptcy:

• Under the Bankruptcy Code, you are allowed to exempt up to $20,200 of your home equity with a Homestead exemption.  Some states do not have a Homestead exemption, and some allow you to protect all or most of the equity in your home.
• You will generally be allowed to keep the cash value of your insurance policies.
• Public benefits such as welfare, Social Security and unemployment insurance are always protected.
• Retirement benefits are normally protected in bankruptcy.
• Tools used in your profession are protected up to a few thousand dollars.
• Most states allow you to keep personal property such as clothing, household goods, furniture, appliances, books and musical instruments. You may also be able to keep jewelry valued up to $1,000. Most states typically allow you to keep your vehicle as well as provide a “wild card” amount of money ($1,000 or more) that you can apply toward any property.

 
A Chapter 13 bankruptcy, often referred to as a ”wage-earner’s plan,”  allows you to retain ownership and possession of all your assets, but are required to devote a portion of future income to repaying creditors, typically over a period of 36 to 60 month period. Once you complete the court-ordered repayment schedule, any unpaid unsecured debt is then discharged.

The amount of payment and repayment time frame is dependent upon a variety of factors, including the value of the property and the debtor’s income and expenses.  You will not lose property in Chapter 13 because you are repaying your debts through your personal income.

Find a reputable bankruptcy lawyer to guide you through your options and help you to make an informed decision on whether bankruptcy is the right path for you as well as which type to declare.