What is the Difference Between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy?
In determining whether or not you should file for bankruptcy, it is important to understand the differences between each one. One of the most common questions is what is the difference between a Chapter 7 bankruptcy and a Chapter 13 Bankruptcy. Below are some of the differences.
A Chapter 7 bankruptcy is sometimes call a liquidation bankruptcy because it provides that the debtor’s assets are liquidated and distributed to the creditors. After filing the bankruptcy petition a Trustee is appointed by the court as the representative of the estate. The Trustee’s job is to liquidate the debtor’s assets to cash and distribute this cash to the creditors.
In order to qualify for a Chapter. 7 bankruptcy the debtor must pass what is called the Means Test. This means test is a basic formula used to calculate whether the debtors will have the ability to pay back the unsecured creditors. The formula works like this: it is the debtor’s income from the past six months prior to filing, averaged minus any qualified deductions from your gross income to determine the debtor’s current monthly income. If the current monthly income is below the national median household income, then the debtor qualifies for the Chapter 7 bankruptcy.
Once the debtor qualifies and their petition has been filed, the debtor will go to a 341 meeting of creditors. This meeting gives the creditors an opportunity to question the debtor about any outstanding debts. This mandatory meeting is overseen by the Trustee, who also have the opportunity to ask the debtor about their petition and any assets that are viable for liquidation. If there are no assets to liquidate, the debtor will be discharged from their debts.
Most likely, if a debtor cannot qualify for a Chapter 7 and pass the means test, then the debtor’s other option is to file for a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the debtor’s debts are not discharged from payment, but instead the debtor goes on a payment plan to pay back all or just a portion of the debt that they owe over a three to five year period. The debtor will propose a plan where they will pay off the creditors for the three to five year period. The plan, however, must be accepted by trustee, the debtor and the creditors before it can be adopted.
Here, whether or not a debtor can or cannot pass the means test does not matter because any individual is eligible as long as the unsecured property is less than $336,000.00 and the secured debts are less than $1,010,650.00. Sometimes debtors prefer this option because they can keep any or all assets that they can make payments on because their payment plans are based on their income. Therefore they are able to keep their assets instead of being forced to liquidate their assets to satisfy their debts.
If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.