As such, there are many differences between Chapter 7 and Chapter 13, two of the available bankruptcy types in the United States. The main differences pertain more to the details of each type of bankruptcy than their general nature. Chapter 7 can be termed an adapted or a partial repayment plan to one’s creditors, the general term for people and businesses to which one owes money.
One option for Chapter 7 is that if one falls below economic means for one reason or another, all ‘non-exempt’ assets worth more than a certain threshold are lost and sold, and the revenue is utilized for one’s creditors.
In contrast, under Chapter 13, a bankruptcy trustee will hold monthly collections of your debts for 3-5 years to satisfy your creditors. Let’s discuss how to file bankruptcy in California, as in Chapter 7 and Chapter 13.
Chapter 7 and Chapter 13 bankruptcy Filing
Chapter 7 Bankruptcy Eligibility
If the gross income of your family is lower than the median income for the same size family in your state, then you are eligible to file for Chapter 7 bankruptcy. Now, add all the gross income you have earned for the past six months and then calculate that amount to 2. After that, review the income charts on the U.S. Trustee’s website and see your figure.
Let’s say you want to start somewhere easy; what’s the best method? The easiest answer would be the “Quick Median Income Test.” If you can’t pass this owing too much of it, you may still be eligible after the second portion of the ‘means test.’ If there is insufficient balance to contribute towards the Chapter 13 plan after accounting for basic expenses, then Chapter 7 would be suitable.
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How to File for Chapter 7 Bankruptcy
- Complete Credit Counseling: Take a course from an approved agency within 180 days before filing.
- Gather Financial Documents: Collect necessary records, such as income, assets, debts, and expenses.
- File Bankruptcy Petition: Submit the petition and essential documents to the bankruptcy court.
- Trustee Appointment: A trustee manages your case and reviews your financials.
- Attend Creditors Meeting: Meet with creditors to discuss your case under the trustee’s supervision.
Chapter 13 Bankruptcy Eligibility
The eligibility to take credit valued at Chapter 13 entails a high cost, including monthly payments that most people can’t easily pay. If you need to qualify for such a status, then you will need to pay first the higher amount of:
- Your nondischargeable priority debt
- Non-exempt property value or
- Disposable income.
How to File for Chapter 13 Bankruptcy
- Complete Credit Counselling: You must complete it within 180 days before filing. Find approved providers via the U.S. Justice Department database.
- Consult a Lawyer: This is not compulsory but highly recommended. Use the NACBA database to find a bankruptcy attorney.
- File a Bankruptcy Petition and Pay Fees: Submit the petition, tax returns, and financial details to your local court.
- File Repayment Plan & Meet Trustee: Submit the repayment plan within 14 days of filing. The court then appoints a trustee to oversee your case.
- Begin Repayment: Start repaying within 30 days, even before court approval.
- Attend Meeting of Creditors: Meet with creditors to discuss repayment plan under oath (no judge).
- Confirmation Hearing: Court approves or denies your plan around 50-75 days after filing. If denied, you can appeal, modify the plan, or convert to Chapter 7.
- Comply with Repayment Plan: Pay trustee for 3-5 years, avoid new debt without permission.
- Take Financial Management Course: Must complete before debt discharge.
- Debt Discharge: Eligible debts are discharged after plan completion.
Conclusion
Those in Chapter 7 will find few options for repaying their creditors, whereas, in Chapter 13, there is a clear repayment plan. However, Chapter 13 provides a more favorable approach to retaining assets needed after bankruptcy. Patience and careful management can restore your credit, shattered by bankruptcy, and will help monitor the rates as they recover.
References:
- https://www.experian.com/blogs/ask-experian/bankruptcy-chapter-7-vs-chapter-13/
- https://www.nolo.com/legal-encyclopedia/how-does-california-bankruptcy-work.html
- https://www.investopedia.com/terms/c/chapter7.asp
- https://www.lendingtree.com/bankruptcy/chapter-13/
