The differences between Chapter 7 and Chapter 13 bankruptcy for Georgia filers
Dealing with financial stress on a long-term basis takes its toll. Filing for a Georgia bankruptcy may be an excellent option for those facing constant financial pressures. Unfortunately, the term “bankruptcy” has a negative connotation, mostly because people do not fully understand what bankruptcy is and how it can help improve their financial state.
A good place to start when learning about bankruptcy is understanding the differences between the two most common types of bankruptcies for individuals: Chapter 7 bankruptcies and Chapter 13 bankruptcies. Neither one is necessarily better than the other, and determining which, if any, is right for you is an important decision that should be made with the assistance of a dedicated Georgia bankruptcy attorney.
When someone files for either type of bankruptcy, the court will immediately impose an automatic stay, preventing creditors from taking any action to collect on a debt. This will stop most wage garnishments, phone calls and collection notices. Importantly, neither Chapter 7 nor Chapter 13 bankruptcy will result in the discharge of non-dischargeable debts, which include debt from child support and spousal support.
Chapter 7 bankruptcy
A Chapter 7 bankruptcy is referred to as a “liquidation bankruptcy” because the trustee appointed by the court to oversee the bankruptcy will gather the filer’s assets and sell them. The trustee will sell all non-exempt property, including the filer’s home. The proceeds from the sale will then be used to pay down creditors. Aside from non-dischargeable debts such as spousal support payments and child support payments, all debts that cannot be covered by the sale are discharged. The average time it takes to complete a Chapter 7 bankruptcy is three to five months.
To qualify for a Chapter 7 bankruptcy, a filer must pass the “means test.” While somewhat complicated, the purpose of the means test is to ensure that the filer qualifies for the protection of a Chapter 7 bankruptcy. Primarily, the means test looks at the filer’s annual income; if a filer makes too much money, they may be required to file a Chapter 13 bankruptcy.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy is known as a “reorganization bankruptcy,” because a filer’s assets are not sold. Instead, the court comes up with a repayment plan in which much of the filer’s unsecured debt is discharged, and most secured debts are paid back over the repayment period. The repayment period in a Chapter 13 bankruptcy is usually between three to five years, during which the filer pays back all secured debt. While there are options for filers who fall behind on their repayment plan payments, Chapter 13 bankruptcy requires a filer maintain a steady income and make continuous payments over a long period of time. A key benefit to a Chapter 13 bankruptcy is that the filer will be able to keep their home, car and other valuable property; however, the repayment plan can be burdensome.
To qualify for a Chapter 13 bankruptcy, a filer must have less than $394,725 in secured debt and $1,184,200 in unsecured debt. Chapter 13 bankruptcy is a good option for filers with a steady income but significant medical or credit card debt, because both of these are considered dischargeable unsecured debts.
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