Bankruptcy
FAQ (Chapter 7 and Chapter 13)
What Is Bankruptcy?
Chapter 7 and Chapter 13 bankruptcy basics.
Bankruptcy is a federal court process designed to help consumers
and businesses eliminate their debts or repay them under the protection
of the bankruptcy court. Bankruptcies can generally be described
as "liquidations" or "reorganizations."
Chapter 7 bankruptcy is the liquidation variety: If you own property
that isn't exempt under your state's laws, it may be taken and sold
("liquidated") to pay back some of your debt. Chapter 13 bankruptcy
is the most common type of "reorganization" bankruptcy for consumers:
You get to keep all of your property, but you must make monthly
payments over three to five years to repay all or some of your debt.
Both kinds of bankruptcy have numerous rules -- and exceptions
to those rules -- about what kinds of debts are covered, who can
file, and what property you can and cannot keep.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy can be filed by individuals (called a "consumer"
Chapter 7 bankruptcy) or businesses (called a "business" Chapter
7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six
months.
Property liquidation. In Chapter 7 bankruptcy,
some of your property may be sold to pay down your debt. In return,
most or all of your unsecured debts (that is, debts for which collateral
has not been pledged) will be erased. You get to keep any property
that is classified as exempt under the state or federal laws available
to you (such as your clothes, car, and household furnishings). Many
debtors who file for Chapter 7 bankruptcy are pleased to learn that
all of their property is exempt.
Secured debt. If you owe money on a secured debt
(for example, a car loan for which the car is pledged as a guarantee
of payment), you have a choice of allowing the creditor to repossess
the property; continuing your payments on the property under the
contract (if the lender agrees); or paying the creditor a lump sum
amount equal to the current replacement value of the property. Some
types of secured debts can be eliminated in Chapter 7 bankruptcy.
Eligibility for Chapter 7. Not everyone can file
for Chapter 7 bankruptcy. For example, if your disposable income
is sufficient to fund a Chapter 13 repayment plan -- after subtracting
certain allowed expenses and monthly payments for certain debts
-- you won't be allowed to use Chapter 7 bankruptcy.
Bankruptcy doesn't work on some kinds of debts.
Though bankruptcy can eliminate many kinds of debts, such as credit
card debt, medical bills, and unsecured loans, there are many types
of debts, including child support and spousal support obligations
and most tax debts, that cannot be wiped out in bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as "wage earner" bankruptcy
because, in order to file for Chapter 13, you must have a reliable
source of income that you can use to repay some portion of your
debt.
Repayment. When you file for Chapter 13 bankruptcy,
you must propose a repayment plan that details how you are going
to pay back your debts over the next three to five years. The minimum
amount you'll have to repay depends on how much you earn, how much
you owe, and how much your unsecured creditors would have received
if you'd filed for Chapter 7 bankruptcy.
Debt limits. Your debts must be within limits
set by the federal government: Currently, you may not have more
than $1,010, 650 in secured debt and $336,900 in unsecured debt.
Secured debts. If you have secured debts, Chapter
13 gives you an option to make up missed payments to avoid repossession
or foreclosure. You can include these past due amounts in your repayment
plan and make them up over time.
Other Types of Reorganization Bankruptcy
In addition to Chapter 13 bankruptcy, there are two other types
of reorganization bankruptcy: Chapter 11 and Chapter 12.
Chapter 11 bankruptcy. Chapter 11 is typically
used by financially struggling businesses to reorganize their affairs.
It is also available to individuals, but because Chapter 11 bankruptcy
is expensive and time-consuming, it is generally used only by those
whose debts exceed the Chapter 13 bankruptcy limits (rare) or who
own substantial nonexempt assets (such as several pieces of real
estate). If you are considering Chapter 11 bankruptcy, you'll need
to talk to a lawyer.
Chapter 12 bankruptcy. Chapter 12 is almost identical
to Chapter 13 bankruptcy. But to be eligible for Chapter 12 bankruptcy,
at least 80% of your debts must arise from the operation of a family
farm. Chapter 12 bankruptcy has higher debt ceilings to accommodate
the large debts that may come with operating a farm, and it offers
the debtor more power to eliminate certain types of liens. Very
few people use Chapter 12 bankruptcy; if you want to join their
ranks, you should consult with a lawyer.
What Bankruptcy Can and Cannot Do
Bankruptcy is a powerful tool for debtors,
but some kinds of debts can't be wiped out in bankruptcy.
Bankruptcy is good at wiping out credit card debt, but you may
have trouble eliminating some other kinds of debts, including child
support, alimony, most tax debts, student loans, and secured debts.
What Bankruptcy Can Do
If you are facing serious debt problems, bankruptcy may offer a
powerful remedy. Here are some of the things filing for bankruptcy
can do:
Wipe out credit card debt and other unsecured debts.
Bankruptcy is very good at wiping out credit card debt.
Unless you have a special "secured" credit card, your credit card
balance is an unsecured debt -- that is, the creditor does not have
a lien on any of your property and cannot repossess any items if
you fail to pay the debt. This is precisely the kind of debt that
bankruptcy is designed to eliminate. Besides credit card debt, you
may have other unsecured debts, and bankruptcy can wipe these out
as well.
If you file for Chapter 13 rather than Chapter 7, you may have
to pay back some portion of your unsecured debts. However, any unsecured
debts that remain once your repayment plan is complete will be discharged.
Stop creditor harassment and collection activities.
Bankruptcy can stop creditor harassment, but if the "harassment"'
is simply phone calls and letters, there are simpler ways to stop
it;
. If the harassment is more serious -- for instance, if the creditor
is about to repossess your car or foreclose your mortgage -- bankruptcy
can help;
.
Eliminate certain kinds of liens. A lien is a
creditor's right to take some or all of your property and will survive
bankruptcy unless you invoke certain procedures during your bankruptcy
case.
What Bankruptcy Can't Do
Here's what bankruptcy cannot do for you:
Prevent a secured creditor from repossessing property.
A bankruptcy discharge eliminates debts, but it does not eliminate
liens. So, if you have a secured debt (a debt where the creditor
has a lien on your property and can repossess it if you don't pay
the debt), bankruptcy can eliminate the debt, but it does not prevent
the creditor from repossessing the property.
Eliminate child support and alimony obligations.
Child support and alimony obligations survive bankruptcy -- you
will continue to owe these debts in full, just as if you had never
filed for bankruptcy. And if you use Chapter 13, your plan will
have to provide for these debts to be repaid in full.
Wipe out student loans, except in very limited circumstances.
Student loans can be discharged in bankruptcy only if you can show
that repaying the loan would cause you "undue hardship," a very
tough standard to meet. You must be able to show not only that you
cannot afford to pay your loans now, but also that you have very
little likelihood of being able to pay your loans in the future.
Eliminate most tax debts. Eliminating tax debt
in bankruptcy is not easy, but it is sometimes possible for older
debts for unpaid income taxes. There are many requirements to be
met, however.
Eliminate other nondischargeable debts. The following
debts are not dischargeable under either Chapter 7 or Chapter 13
bankruptcy:
- debts you forget to list in your bankruptcy papers, unless the
creditor learns of your bankruptcy case
- debts for personal injury or death caused by your intoxicated
driving, and
- fines and penalties imposed for violating the law, such as traffic
tickets and criminal restitution.
If you file for Chapter 7, these debts will remain when your case
is over. If you file for Chapter 13, these debts will have to be
paid in full during your repayment plan. If they are not repaid
in full, the balance will remain at the end of your case.
In addition, some types of debts may not be discharged if the creditor
convinces the judge that they should survive your bankruptcy. These
include debts incurred through fraud, such as lying on a credit
application or passing off borrowed property as your own to use
as collateral for a loan.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 can't help you with these situations, but Chapter 13
can:
Stop a mortgage foreclosure. Filing for Chapter
13 bankruptcy will stop a foreclosure and force the lender to accept
a plan where you make up the missed payments over time while staying
current on your regular monthly payments. To make this plan work,
you must be able to demonstrate that you will have enough income
in the future to support such a repayment plan.
Allow you to keep nonexempt property. You don't
have to give up any property in Chapter 13 because you use your
income to fund your repayment plan.
"Cram down" secured debts that are worth more than the
property that secures them. You can sometimes use Chapter
13 to reduce a debt to the replacement value of the property securing
it, then pay off that debt through your plan. For example, if you
owe $10,000 on a car loan and the car is worth only $6,000, you
can propose a plan that pays the creditor $6,000 and have the rest
of the loan discharged. However, under the new bankruptcy law, you
can’t cram down a car debt if you purchased the car during
the 30-month period before you filed for bankruptcy. For other types
of personal property, you can’t cram down a secured debt if
you purchased the property within one year of filing for bankruptcy.
Filing Bankruptcy? Disclose Everything, Hide Nothing
Hiding property from a bankruptcy court
could come back to haunt you.
Your bankruptcy papers are signed under penalty of perjury, so
you are swearing that everything in them is true. One of the things
you're swearing to is that your forms are complete, because the
forms ask you to list "all" property, income, and debts. Filing
incomplete or inaccurate bankruptcy forms can lead to your case
being dismissed -- or worse, if the court thinks you omitted information
or made false statements intentionally.
The law is not supposed to punish those who make one or two honest
mistakes. If you accidentally leave something off your papers or
misstate something on your forms, you can usually correct your papers
or explain the mistake to the trustee. But if you leave out so much
that it appears that you were careless, the court can find that
your actions demonstrate an indifference to the truth and can dismiss
your case on that basis.
If you deliberately attempt to hide assets or use a false Social
Security number, it will probably come back to haunt you more profoundly
than your current debt crisis.
List Every Creditor
Bankruptcy can't help you if you hide information. If you fail
to list creditors, the debts you owe them may not be wiped out by
your bankruptcy discharge. So, be sure to list every person who
claims that you owe them money -- even if you don’t think
you owe them a cent. In this situation, you can indicate that the
debt is "disputed." If the debt is already the subject of a pending
lawsuit, the debt can be listed as "contingent" -- that is, it depends
on how the lawsuit comes out.
When your bankruptcy is finished, you will no longer owe any debts
that have been discharged. If a disputed debt is discharged, the
entire dispute will be irrelevant. The creditor will be legally
barred from collecting anything more from you regardless of who
is right.
Don't Omit Creditors Just Because You Like Them
Some filers consider omitting creditors whom they like -- such
as a relative or a friendly local business person -- to avoid having
that debt wiped out. This is a bad idea, no matter how honorable
your intentions.
Bankruptcy doesn't allow you to play favorites. In fact, a central
purpose of bankruptcy is to make sure that all of your creditors
get their fair share of what you have, and that certain obligations
(like child support) are not shortchanged. If the bankruptcy trustee
learns that you've omitted creditors from your list, you'll have
to add them, and it will raise suspicion about other statements
on your forms.
Include Money You May Have Coming to You
When you list your property on the bankruptcy forms, you must include
not only property you have when you file, but also property that
you may have coming to you. Here are some examples:
- an inheritance from a recently deceased relative that you have
not yet received
- stock options, trust funds, or tax refunds
- pensions, retirement funds, annuities, and life insurance, and
- judgments from lawsuits you've filed or could file, arising
from a personal injury or other matter.
All of these are examples of property that you must list on your
forms. You may get to keep some or all of this property by claiming
it as exempt, but you must list it so that the trustee has a complete
picture of all of your finances.
Don't Deliberately Hide Assets or Other Financial Details
If you deliberately fail to disclose property, omit material information
about your financial affairs, or use a false Social Security number
to hide your identity as a prior filer, and the court discovers
your action, your case will be dismissed and you may be prosecuted
for fraud. The punishment for fraud is serious: Jail time is not
unusual for those who try to hide property from the court and get
caught.
A Chapter 7 Bankruptcy Overview
How Chapter 7 bankruptcy works.
Chapter 7 bankruptcy is sometimes called "liquidation" bankruptcy
-- it cancels your debts, but you might have to let the bankruptcy
court liquidate (sell) some of your property for the benefit of
your creditors. ("Chapter 7" refers to the chapter of the federal
Bankruptcy Code that contains the bankruptcy law.)
Chapter 7 Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to six
months, costs $299 in filing and administrative fees, and commonly
requires only one trip to the courthouse.
You must also complete credit counseling with an agency approved
by the United States Trustee. (For a list of approved agencies in
each state, go to the Trustee's website,
www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education.")
Who Can File
You won't be able to use Chapter 7 bankruptcy if you already received
a bankruptcy discharge in the last six to eight years (depending
which type of bankruptcy you filed) or if, based on your income,
expenses, and debt burden, you could feasibly complete a Chapter
13 repayment plan.
Bankruptcy Forms
To file for Chapter 7 bankruptcy, you fill out a petition and a
number of other forms and file them with the bankruptcy court in
your area. Basically, the forms ask you to describe:
- your property
- your current income and monthly living expenses
- your debts
- property you claim the law allows you to keep through the Chapter
7 bankruptcy process (called "exempt property") -- most states
let you keep some equity in your home, clothing, household furnishings,
Social Security payments you haven't spent, and other necessities
such as a car and the tools of your trade.
- property you owned and money you spent during the previous two
years, and
- property you sold or gave away during the previous two years.
Bankruptcy's Magic Wand -- The Automatic Stay
Filing for Chapter 7 bankruptcy puts into effect an "Order
for Relief" -- known informally as the "automatic stay." The
automatic stay immediately stops most creditors from trying
to collect what you owe them. So, at least temporarily, creditors
cannot legally grab ("garnish") your wages, empty your bank
account, go after your car, house, or other property, or cut
off your utility service or welfare benefits.
Bankruptcy Court's Control Over Your Financial Affairs
By filing for Chapter 7 bankruptcy, you are technically placing
the property you own and the debts you owe in the hands of the
bankruptcy court. You can't sell or give away any of the property
you own when you file, or pay off your pre-filing debts, without
the court's consent. However, with a few exceptions, you can
do what you wish with property you acquire and income you earn
after you file for bankruptcy.
The Bankruptcy Trustee for Chapter 7 Bankruptcy
The court exercises its control through a court-appointed person
called a "bankruptcy trustee." The trustee's primary duty is
to see that your creditors are paid as much as possible on what
you owe them. And the more assets the trustee recovers for creditors,
the more the trustee is paid.
The trustee (or the trustee's staff) will examine your papers
to make sure they are complete and to look for nonexempt property
to sell for the benefit of creditors. The trustee will also
look at your financial transactions during the previous year
to see if any can be undone to free up assets to distribute
to your creditors. In most Chapter 7 bankruptcy cases, the trustee
finds nothing of value to sell.
The Creditors Meeting
A week or two after you file, you (and all the creditors you
list in your bankruptcy papers) will receive a notice that a
"creditors meeting" has been scheduled. The bankruptcy trustee
runs the meeting and, after swearing you in, may ask you questions
about your bankruptcy and the papers you filed. In the vast
majority of Chapter 7 bankruptcies, this is the debtor's only
visit to the courthouse.
What Happens to Your Property
If, after the creditors meeting, the trustee determines that
you have some nonexempt property, you may be required to either
surrender that property or provide the trustee with its equivalent
value in cash. If the property isn't worth very much or would
be cumbersome for the trustee to sell, the trustee may "abandon"
the property -- which means that you get to keep it, even though
it is nonexempt. (For information on which types of property
are typically exempt, see
When Chapter 7 Bankruptcy Isn't the Right Choice. However, which
property is exempt varies by state.
Most property owned by Chapter 7 debtors is either exempt or
is essentially worthless for purposes of raising money for the
creditors. As a result, few debtors end up having to surrender
any property, unless it is collateral for a secured debt (see
below).
How Your Secured Debts Are Treated
If you've pledged property as collateral for a loan, the loan
is called a secured debt. The most common examples of collateral
are houses and automobiles. If you're behind on your payments,
the creditor can ask to have the automatic stay lifted in order
to repossess or foreclose on the property. However, if you are
current on your payments, you can keep the property and keep
making payments as before -- unless you have enough equity in
the property to justify its sale by the trustee.
If a creditor has recorded a lien against your property because
of a debt you haven't paid (for example, because the creditor
obtained a court judgment against you), that debt is also secured.
You may be able to wipe out the lien in Chapter 7 bankruptcy.
The Chapter 7 Bankruptcy Discharge
At the end of the bankruptcy process, all of your debts are
wiped out (discharged) by the court, except:
- debts that automatically survive bankruptcy, such as child
support, most tax debts, and student loans, unless the court
rules otherwise, and
- debts that the court has declared nondischargeable because
the creditor objected (for example, debts incurred by your
fraud or malicious acts).
An Overview of Chapter 13 Bankruptcy
The basic steps involved in a typical
Chapter 13 bankruptcy case.
Chapter 13 bankruptcy, sometimes called reorganization
bankruptcy, is quite different from Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy, most of your debts are wiped
out; in exchange, you must relinquish any property that
isn't exempt from seizure by your creditors. In a Chapter
13 bankruptcy, you don't have to hand over any property,
but you must use your income to pay some or all of what
you owe to your creditors over time -- from three to five
years, depending on the size of your debts and income.
Chapter 13 Eligibility
Chapter 13 bankruptcy isn't for everyone. Because Chapter
13 requires you to use your income to repay some or all
of your debt, you'll have to prove to the court that you
can afford to meet your payment obligations. If your income
is irregular or too low, the court might not allow you to
file for Chapter 13.
If your total debt burden is too high, you are also ineligible.
Your secured debts cannot exceed $1,010,650, and your unsecured
debts cannot be more than $336,900. A "secured debt" is
one that gives a creditor the right to take a specific item
of property (such as your house or car) if you don't pay
the debt. An "unsecured debt" (such as a credit card or
medical bill) doesn't give the creditor this right.
The Chapter 13 Process
Before you can file for bankruptcy, you must receive credit
counseling from an agency approved by the United States
Trustee's office. (For a list of approved agencies, go to
the Trustee's website at
www.usdoj.gov/ust and click "Credit Counseling and
Debtor Education.") These agencies are allowed to charge
a fee for their services, but they must provide counseling
for free or at reduced rates if you cannot afford to pay.
In addition, you'll have to pay the filing fee, which is
currently $274, and file numerous forms.
The Chapter 13 Repayment Plan
The most important part of your Chapter 13 paperwork will
be a repayment plan. Your repayment plan will describe in
detail how (and how much) you will pay each of your debts.
There is no official form for the plan, but many courts
have designed their own forms.
How Much You Must Pay
Your Chapter 13 plan must pay certain debts in full. These
debts are called "priority debts," because they're considered
sufficiently important to jump to the head of the bankruptcy
repayment line. Priority debts include child support and
alimony, wages you owe to employees, and certain tax obligations.
In addition, your plan must include your regular payments
on secured debts, such as a car loan or mortgage, as well
as repayment of any arrearages on the debts (the amount
by which you've fallen behind in your payments).
The plan must show that any disposable income you have
left after making these required payments will go towards
repaying your unsecured debts, such as credit card or medical
bills. You don't have to repay these debts in full (or at
all, in some cases). You just have to show that you are
putting any remaining income towards their repayment.
How Long Your Repayment Plan Will Last
The length of your repayment plan depends on how much you
earn and how much you owe. If your average monthly income
over the six months prior to the date you filed for bankruptcy
is more than the median income for your state, you'll have
to propose a five-year plan. If your income is lower than
the median, you may propose a three-year plan. (To get the
median income figures for your state, go to the United States
Trustee's website,
www.usdoj.gov/ust, and click "Means Testing Information.")
No matter how much you earn, your plan will end if you
repay all of your debts in full, even if you have not yet
reached the three- or five-year mark.
If You Can’t Make Plan Payments
If for some reason you cannot finish a Chapter 13 repayment
plan -- for example, you lose your job six months into the
plan and can’t keep up the payments -- the bankruptcy
trustee may modify your plan, or the court might let
you discharge your debts on the basis of hardship. Examples
of hardship would be a sudden plant closing in a one-factory
town or a debilitating illness.
If the bankruptcy court won’t let you modify your
plan or give you a hardship discharge, you might be able
to convert to a Chapter 7 bankruptcy or ask the bankruptcy
court to dismiss your Chapter 13 bankruptcy case (you would
still owe your debts, plus any interest creditors did not
charge while your Chapter 13 case was pending).
How a Chapter 13 Case Ends
Once you complete your repayment plan, all remaining debts
that are eligible for discharge will be wiped out. Before
you can receive a discharge, you must show the court that
you are current on your child support and/or alimony obligations
and that you have completed a budget counseling course with
an agency approved by the United States Trustee. (This requirement
is separate from the mandatory credit counseling you must
undergo before filing for bankruptcy -- you can
find a list of approved agencies at the Trustee's website,
www.usdoj.gov/ust; click "Credit Counseling and Debtor Education.")
Bankruptcy FAQ (Chapter 7 and Chapter 13)
Chapter 7 bankruptcy and Chapter 13 bankruptcy: what you
need to know.
What's Below:
What exactly
is bankruptcy? Will it wipe out all my debts?
What is
the difference between Chapter 7 and Chapter 13 bankruptcy?
Which one lets me keep my property?
Am I free
to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy?
Which type of bankruptcy should I use?
What
exactly is bankruptcy? Will it wipe out all my debts?
Bankruptcy is a federal court process designed to help
consumers and businesses eliminate their debts or repay
them under the protection of the bankruptcy court. Bankruptcies
can generally be described as "liquidation" (Chapter 7)
or "reorganization" (Chapter 13). Under a Chapter 7 bankruptcy,
you ask the bankruptcy court to wipe out (discharge) the
debts you owe. Under a Chapter 13 bankruptcy, you file a
plan with the bankruptcy court proposing how you will repay
your creditors. You must repay some debts in full; others
may be repaid only partially or not at all, depending on
what you can afford.
When you file either kind of bankruptcy, a court order
called an "automatic stay" goes into effect. The automatic
stay prohibits most creditors from taking any action to
collect the debts you owe them unless the bankruptcy court
lifts the stay and lets the creditor proceed with collections.
Certain debts cannot be discharged in bankruptcy; you will
continue to owe them just as if you had never filed for
bankruptcy. These debts include back child support, alimony,
and certain kinds of tax debts. Student loans will not be
discharged unless you can show that repaying the debt would
be an undue burden, which is a very tough standard to meet.
And other types of debts might not be discharged if a creditor
convinces the court that the debt should survive your bankruptcy.
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What
is the difference between Chapter 7 and Chapter 13 bankruptcy?
Which one lets me keep my property?
In Chapter 7 bankruptcy, you ask the bankruptcy court to
discharge most of the debts you owe. In exchange for this
discharge, the bankruptcy trustee can take any property
you own that is not exempt from collection (see below),
sell it, and distribute the proceeds to your creditors.
In Chapter 13 bankruptcy, you file a repayment plan with
the bankruptcy court to pay back all or a portion of your
debts over time. The amount you'll have to repay depends
on how much you earn, the amount and types of debt you owe,
and how much property you own.
You lose no property in Chapter 13 bankruptcy, because
you fund your repayment plan through your income. In Chapter
7 bankruptcy, you select property you are eligible to keep
from a list of state exemptions. Although state exemption
laws differ, states typically allow you to keep these types
of property in a Chapter 7 bankruptcy:
- Equity in your home, called a homestead exemption.
Under the Bankruptcy Code, you can exempt up to $20,200
of equity. Some states have no homestead exemption; others
allow debtors to protect all or most of the equity in
their home.
- Insurance. You usually get to keep the cash
value of your policies.
- Retirement plans. Most retirement benefits
are protected in bankruptcy.
- Personal property. You'll be able to keep most
household goods, furniture, furnishings, clothing (other
than furs), appliances, books and musical instruments.
You may be able to keep jewelry only worth up to $1,000
or so. Most states let you keep a vehicle as long as your
equity doesn't exceed several thousand dollars. And many
states give you a "wild card" amount of money -- often
$1,000 or more -- that you can apply toward any property.
- Public benefits. All public benefits, such
as welfare, Social Security, and unemployment insurance,
are fully protected.
- Tools used on your job. You'll probably be
able to keep up to a few thousand dollars worth of the
tools used in your trade or profession.
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Am
I free to choose between Chapter 7 bankruptcy and Chapter
13 bankruptcy? Which type of bankruptcy should I use?
If you meet the eligibility requirements for both types
of bankruptcy, then you can choose the type of bankruptcy
that makes the most sense for your situation. However, you
may not have a choice.
Under the new bankruptcy law, filers whose incomes are
higher than the median income for a family of their size
in their state may not be allowed to file for Chapter 7
bankruptcy if their disposable income, after subtracting
certain allowed expenses and required debt payments, would
allow them to pay back some portion of the unsecured debt
over a five-year repayment period.
Also, if you have secured debts of more than $1,010,650
and unsecured debts of more than $336,900, for example,
then you cannot use Chapter 13 bankruptcy.
Most people who file for bankruptcy choose to use Chapter
7, if they meet the eligibility requirements; Chapter 7
is a popular choice because, unlike Chapter 13, it doesn't
require filers to pay back any portion of their debts.
However, Chapter 13 might be a better choice, depending
on your situation. For example, if you are behind on your
mortgage and want to keep your house, you can include your
missed payments in your Chapter 13 plan and repay them over
time. In Chapter 7, you would have to make up the whole
past due amount right away -- and you might lose your house,
if your equity exceeds the exemption amount available to
you.
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