Which Bankruptcy Chapter Should You Choose?
Chapter 7 or Chapter 13
The choice of bankruptcy chapter depends on many factors that are specific to your situation, and this is one of the most important reasons to get good legal advice before filing. Which chapter is best for you depends on the nature of your debt and the nature and value of your assets. At Kerry Steigerwalt's Pacific Law Center, we offer a free debt evaluation and we want you to make the best decision for you. It may be useful for you to obtain a free copy of your credit report before filing. Contact us today to schedule a consultation with a bankruptcy attorney at our office in La Jolla, San Diego.
Chapter 7 Liquidation
Chapter 7 liquidation is the most common type of bankruptcy for individuals. The debtor receives a discharge of most or all unsecured debts within several months of filing the case. If the debtor's income appears high enough to permit some repayment of debt, the trustee or the court may move to dismiss the case for "substantial abuse". The theory is that the court should require someone who has the ability to repay his or her debts to do so. Allowing individuals to walk without repayment is an abuse to the system. This is termed "substantial abuse" and is a catch phrase with the U.S. Congress.
If your debt is a mix of business and consumer debts, it is important to know the legal form of your business. Corporations and partnerships can file Chapter 7 and Chapter 11 and the choice depends on whether the business can be reorganized in Chapter 11 or will be liquidated in Chapter 7. Sole proprietorships are treated (for bankruptcy purposes) as just one kind of asset of the individual who owns them; thus the owner of a troubled business must file an individual bankruptcy, including all of his assets and liabilities, personal and business, to obtain bankruptcy court protection. Contact a bankruptcy attorney at San Diego's Kerry Steigerwalt's Pacific Law Center to learn more.
Chapter 13 Consolidation
Chapter 13 consolidation is frequently a better choice if you have debts that are not dischargeable under Chapter 7. Many people select Chapter 13 because they are in default on mortgages or car payments and they want to save them. Chapter 13 is also a good option if you have more property than can be exempted from creditors in Chapter 7, or if you owe taxes or other debts that are not dischargeable in Chapter 7. A bankruptcy attorney can help you determine which debts are dischargeable.
Debtors choose to file a repayment plan under Chapter 13 when:
- They owe debts not dischargeable in Chapter 7 (such as taxes, child support, fraud judgment).
- They have liens that are larger than the value of the assets securing the debt.
- They have years of unfiled taxes.
- They are behind on car or house payments.
- Their assets are worth more than the available exemptions.
In Chapter 13 you can wrap most of your bills into one simple monthly payment to the Trustee and still eliminate many unsecured debts.
The scope of the discharge is different in each chapter. The Bankruptcy Code makes the Chapter 13 discharge more encompassing, to encourage individuals to use Chapter 13 to repay a portion of their debts.
Generally speaking, most unsecured debt is dischargeable. Most secured debt survives bankruptcy as a lien on the property to which it is associated unless a court order modifies the lien.
A Chapter 13 may be best if you have the following debts that are not dischargeable:
- Recent taxes
- Family support obligations
- Drunk driving judgments
- Criminal fines
- Criminal restitution
- Debts incurred by fraud
- Debts by any intentional wrongdoing
Please remember that secured debts remain after bankruptcy. If you owe money that is secured by a home or vehicle you cannot get a free house or car by filing. You can, however, give up the home or vehicle and be released from any liability on that debt.
In Chapter 13 the following debts are not dischargeable:
- Student loans
- Family support obligations
- Drunk driving judgments
- Criminal restitution
Chapter 13 Wage Earner plans must provide for full payment of priority tax debts and past due family support. It is possible to discharge debts based on fraud or wrongdoing under certain circumstances.
Contact Kerry Steigerwalt's Pacific Law Center to arrange a bankruptcy attorney consultation at our practice in San Diego.
We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
