If you are considering bankruptcy, choosing between different types of Bankruptcy including Chapter 7 and Chapter 13 are probably on your mind. Both allow you to reduce debt, but they do so in different ways. Generally speaking, if you have fewer assets and lower income, Chapter 7 makes sense.

However, if you have a higher income and substantial assets, a debt restructuring plan through a Chapter 13 can provide debt relief without forcing the sale of valuable property.

 

Chapter 7 Bankruptcy in Athens

A Chapter 7 bankruptcy, also referred to as liquidation bankruptcy, allows the debtor to walk away from certain debts, giving him or her a fresh start. However, not all debts are dischargeable, and the debtor must liquidate certain assets to pay back creditors, even if their sale yields only pennies on the dollar.

However, bankruptcy law allows you to keep certain property, such as a home or car, but only if you meet specific criteria.

Also, the law prohibits debtors from discharging certain types of debt in a Chapter 7 bankruptcy. Non-dischargeable debts include the following:

• Student loans
• Most taxes
• Child support
• Some fines
• Debts obtained by fraud
• Criminal restitution

How Filing for Chapter 7 Bankruptcy Works in Athens

The bankruptcy court employs a trustee, who is responsible for assessing what assets debtors possess and selling them to obtain a partial payment to creditors. However, in practice, few Chapter 7 debtors have property eligible for seizure, so they complete bankruptcy without paying another dime in dischargeable debts.

State and federal bankruptcy laws permit petitioners to “exempt” specific types of property up to a maximum dollar amount. The purpose of this provision is to allow petitioners to keep property they need to work and live, such as a home, transportation, and furnishings.

Can You Keep a House or Car After Filing for Chapter 7 Bankruptcy?

Upon filing a Chapter 7, the court issues an automatic stay. Under this order, your creditors must cease all collections activity, including foreclosures, evictions, and repossessions. This means you can keep your vehicle and remain in your home for the term of the automatic stay, even if you must relinquish them later.

However, you can keep your home or vehicle permanently if you reaffirm the debt or qualify under an exemption.

Mortgages and car loans are secured debts, which allow the lender to seize the property if you default. As a result, you can wipe out the balance in Chapter 7 but the lender can repossess the property.

However, even if you remain current on a secured loan, you can lose the property in Chapter 7 if your equity in the property exceeds the allowable exemption. For example, suppose you have a mortgage and a small amount of equity in your home. In that case, the law considers it exempt, allowing you to keep it in Chapter 7.

However, if your equity exceeds the exemption limit, the trustee will seize the home, sell it, and use the proceeds to repay your creditors.

Qualifying for a Chapter 7 Bankruptcy

Qualifying for a Chapter 7 bankruptcy is not automatic. If you have a high income or substantial assets, you may be excluded from receiving a Chapter 7 discharge, though you can file a Chapter 13.

To qualify for Chapter 7, you must pass the “means test“. This test requires you to have an income lower than the state’s median income for your family size. If so, you automatically pass and can file a Chapter 7.

But all hope is not lost for higher income earners. They can qualify for a Chapter 7 if their expenses are too high compared to their income to repay creditors. For instance, if your household makes $8000 a month after taxes but must pay creditors $12,000 monthly, you may qualify for a Chapter 7.

The Chapter 7 Bankruptcy Process in Athens

Your bankruptcy attorney will perform means-testing to determine your eligibility for a Chapter 7 before you file. This requires you to furnish income and expenses documentation and answer some standard questions. If you pass the means test and file, your case proceeds according to the following steps:

Filing the Petition

A Chapter 7 case begins when your lawyer submits a packet of papers to the bankruptcy court known as the petition. The petition discloses to the court material information about your finances, including your income, debt, property, and property transfers over the past decade.

You must declare property transfers so the court can determine if any of that property is eligible for seizure by the trustee. For example, a court will not allow you to transfer ownership of a home to a family member, file bankruptcy, and not include the home as one of your assets.

The Court Issues the Automatic Stay

Upon receiving your petition, the court issues an automatic stay and informs the creditors you are included in the bankruptcy. As a result, most creditors must automatically cease collection activities. This means property repossession attempts and collection calls stop.

Creditors, in some situations, may have eligibility to gain relief from the automatic stay. In that case, they must obtain court permission before restarting collection activity. Your bankruptcy attorney will inform you if you have any creditors who may have an exemption to the automatic stay.

Supporting Paperwork Submission

The court sends petitioners a communication requesting the submission of supporting paperwork. You must comply with this request or risk your case being dismissed.  The requested paperwork proves the statements you made in your petition regarding your income, expenses, and assets. For example, the court typically requires recent tax returns, bank statements, paycheck stubs, and other documentation.

Generally, you send this information to the bankruptcy trustee by mail.

The Meeting of the Creditors

Each Chapter 7 petitioner must attend a meeting of the creditors, known as a 341 hearing. During this proceeding, the trustee verifies your identity and asks a series of questions about your petition and finances, such as whether you have a property in storage somewhere or are the plaintiff in any lawsuits.

Creditors can attend and ask questions, but this rarely occurs. In most cases, the creditors stand to gain nothing by appearing.

Completing the Financial Management Course

To receive your Chapter 7 discharge, you must complete a debtor’s education course. These courses are usually offered online and teach concepts like budgeting to help filers avoid financial difficulties in the future.

The Court Issues the Discharge

Once the preceding steps are completed, the court issues the discharge. You receive a copy of your discharge in the mail. This document is very important and should be kept in a safe place.

It is your evidence that you are legally relieved of dischargeable debts. If anyone tries to collect a debt discharged in your bankruptcy, you can present the discharge paper as proof they have no legal standing.

Also, the discharge document may be required by lenders in the future. For example, you may need to submit it when financing a car, applying for a mortgage, or renting an apartment.

The discharge does not list the specific debts wiped clean. Instead, it lists the types of debt that survive bankruptcy, such as child support, recent tax debt, and student loans.

The Court Closes the Case

Shortly after issuing the discharge order, the court closes your case, leaving you free to pursue a life free of discharged debts. In a few instances, the case remains open for an extended period. This happens if the trustee has yet to distribute nonexempt assets or if you are involved in additional bankruptcy litigation with creditors.

What Is a Chapter 13 Bankruptcy?

Chapter 13 bankruptcies differ from Chapter 7s in that they require debtors to restructure payments and pay creditors at least a portion of what they owe. No property is liquidated, so Chapter 13 allows you to keep your home, vehicle, and other valuables even if they have substantial value.

A Chapter 13 is also an option for debtors who have too much income or assets to qualify for a Chapter 7.

How Does Chapter 13 Bankruptcy Work in Athens?

As with Chapter 7, the court issues an automatic stay prohibiting all further collections activity. Therefore, they are effective at stopping foreclosures, evictions, and auto repossessions. Also, creditors may not continue calling the debtor or sending threatening letters.

Chapter 13 bankruptcies are geared for filers who are still earning enough money to pay off most of their debts but need them restructured. Chapter 13 gets them more time to make payments and may reduce the overall amount owed.

The repayment plan covers all of the debtor’s bills and functions much like a debt consolidation. Instead of paying creditors individually, the debtor sends each monthly payment to the trustee and the trustee distributes monies to the creditors.

How Are Chapter 13 Repayment Plans Structured?

Chapter 13 repayment plans distinguish between three types of debts: priority, secured, and unsecured.

The plan must repay priority debts first and in full. For example, most tax debts qualify as priority debts.

Secured debts have collateral. Consumer bankruptcies, typically include auto- and home loans. To keep secured property, filers must pay secured lenders at least the value of the collateral.

Unsecured debts have no collateral, such as credit card debt. They are last in line and may or may not be paid in full or at all. Instead, the bankruptcy court reviews the debtor’s disposable income and decides how much-unsecured creditors receive.

Chapter 13 repayment plans range in length between three- and five years. Generally speaking, courts grant debtors with lower incomes and assets shorter plans while higher earners with larger asset bases must make more payments.

When the repayment plan terminates, any leftover dischargeable debt is eliminated. For instance, all remaining amounts owed on credit cards are forgiven. However nondischargeable debts remain the borrower’s responsibility.

Choosing between a Chapter 7 and Chapter 13 is a big decision for some bankruptcy petitioners. If all of your valuable property is exempt under Chapter 7, then a liquidation bankruptcy may be the best option. However, if you have large non-exempt holdings, you can keep them and obtain debt relief by choosing Chapter 13.

Get in Touch with Our Best Bankruptcy Lawyer Immediately

Morgan & Morgan bankruptcy attorneys are happy to walk you through the different bankruptcy options and help you decide which one makes more sense for you. Contact Morgan & Morgan for a free consultation.

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