Thursday, March 27, 2014

Quick Comparison of Chapter 7 vs 13 Bankruptcy Filings

Bankruptcy is steeped in myths and prejudices. If you are like most people, the first step towards repairing your finances is to overcome the feelings of shame, guilt, inadequacy and fear of what you don’t understand. Bankruptcy is designed to offer reasonable relief for honest debtors who are facing extreme financial hardship. If you don’t have any way of fulfilling your financial obligations, you should definitely consider a Chapter 7 or Chapter 13 bankruptcy. 

Advantages of Bankruptcy


As soon as you file a bankruptcy claim, a shield known as the automatic stay will keep creditors from contacting you and from proceeding with their legal filings. Any creditor that disobeys the automatic stay will face heavy fines and may even be forced to pay your attorney fees. However, creditors do have the right to ask the judge for permission to proceed with collection processes which may include foreclosure or repossession. Here are the biggest advantages of filing bankruptcy:
  • Almost all lawsuits filed against you will be stopped
  • Your wages can’t be garnished
  • Evictions, foreclosures and repossessions will be averted
  • IRS seizures will halt
  • Most debts including credit cards, utility bills, phone bills, medical bills, most loans and judgments will be discharged

Top Bankruptcy Alternative


Bankruptcy should never be your first choice. You should resort to it only if you have exhausted all other possible solutions:
  • Sell some assets to help pay debt
  • Try negotiating with creditors to lower payments
  • Restructure your mortgage
  • Withdraw or borrow against pensions or retirement accounts
  • Ask family and friends for help

Chapter 7 vs Chapter 13


Whether you file chapter 7 or 13 will depend on your situation. Chapter 7 liquidation allows you to eliminate almost all your debt, but you may be required to forfeit many of your assets including your home and valuable collectibles. These assets will be divided amongst your creditors. Anything you acquire after the bankruptcy cannot be touched. However, income tax refunds, divorce settlements, inheritances, and life insurance money may be applied to your debts for a certain period.

Chapter 13 restructuring gives you three to five years to pay all or a portion of your debts but makes most of your assets untouchable. This is for people who have a regular income but just got overwhelmed with debt. Your repayment plan must be approved by the court and it must pass two tests:
  • The best-interest test: Creditors must get at least the same amount of money they would have received if you filed a chapter 7.
  • The best-efforts test: Requires that you pay all your disposable income, minus reasonable expenses, to creditors.

Choosing a Bankruptcy Attorney


You should definitely hire an attorney to assist you through this difficult and complicated legal process. Though there are many generalized lawyers out there, a specialized legal team like Lynch & Belch P.C. and others in that market will thoroughly understand bankruptcy law, help you with all paperwork, secure maximum relief for you, and will have excellent customer service.

You should never let debt take over your life. If everything else fails, bankruptcy is a viable option that has many benefits that will help you get back on your feet.

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