Chapter 7 vs. Chapter 13: A Bankruptcy Lawyer in Philadelphia Explains the Difference
Bankruptcy enables people who are overwhelmed and unable to continue paying their debts to clear their financial obligations and get a fresh start. Bankruptcy also provides some protection: an automatic stay is enacted that prohibits creditors from contacting the debtor and requiring them to file a claim with the Court to seek satisfaction of their debts. This cessation of phone calls and pressure is often a huge relief to those in financial distress. A Chapter 7 Bankruptcy Lawyer in Philadelphia explains the differences between two options: Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Income is the first and biggest factor that helps debtors decide between Chapter 7 and Chapter 13 bankruptcy. If an individual’s disposable income is below a certain amount, defined by the Means Test, which considers assets, expenses, income, and income prospects, the individual can qualify to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy typically takes only three to five months to discharge, and then the individual is able to start over.
Many people considering bankruptcy worry that they will lose their homes or cars, but often these items are considered exempt. Non-exempt items will be taken by the court trustee and sold in order to pay off creditors. A Chapter 7 bankruptcy lawyer in Philadelphia will advise you of all steps that you should take in the process.
A Chapter 7 bankruptcy is a liquidation procedure and eliminates all unsecured debt such as medical bills and credit cards. Some debts are unable to be discharged, including:
- Debts not set forth by the debtor in the bankruptcy documents
- Debts for willful and malicious injuries to person or property
- Spousal or child support
- Governmental fines or penalties
- Most government funded student loan
- Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
- Certain types of tax claims
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, unlike Chapter 7, is a reorganization of debt. Those who have too much disposable income to pass the Means Test usually choose this option. Chapter 13 debtors will pay back a portion of their debt. Chapter 13 bankruptcy allows individuals to keep their property as long as they are current, and stay current, on payments. Chapter 13 also allows debtors to catch up on home payments and delay or prevent home foreclosure. In some cases, the mortgages can be re-negotiated. The debtor, often aided by a bankruptcy attorney, will put forth a payment plan, and if the plan is accepted by the court, the debtor will begin monthly payments to the bankruptcy trustee. After a set period of 3-5 years, the bankruptcy will be finalized and most of the remaining debt discharged.
As in Chapter 7, some debts are unable to be discharged by a Chapter 13 bankruptcy, including:
- Child support and alimony
- Fines, penalties, and restitution you owe for breaking the law
- Debts incurred due to a death or injury as a result of your intoxicated driving
- Certain tax debts
- Fraudulent debts
- Student loans
- Unlisted debts
There are some debts that are dischargeable in Chapter 13 but non-dischargeable in Chapter 7.
Contact Alfred Abel for an Experienced Chapter 13 or Chapter 7 Bankruptcy Lawyer in Philadelphia
Many rules exist for bankruptcy cases and can cause a debtor confusion, or even worse, the debtor can make a misstep that leads to an unsuccessful case. Alfred Abel Law Offices’s Chapter 13 and Chapter 7 bankruptcy lawyers in Philadelphia pursue our clients’ best interests, offering guidance and assisting in each step of the bankruptcy process. For more information or to schedule a consultation, contact us today.