If you plan on filing for bankruptcy in order to resolve your unsecured debts, end or prevent collection activity such as wage garnishments and lawsuits, and restore your financial health, then the first important decision that you need to make is what chapter to file under: Chapter 7, Chapter 11, or Chapter 13.
About Chapter 7 Bankruptcy
Chapter 7 bankruptcy (also referred to as liquidation bankruptcy) essentially involves hitting the financial reset button and starting over. However, this does not necessarily mean that you will lose all of your assets. Federal and state laws allow for specific exceptions, which means that you will likely be able to keep your primary residence and some personal items. Furthermore, funds that are saved in retirement plans such as a 401(k), 403(b), 457(b), Keogh, or other profit-sharing or defined benefit plan are off-limits to creditors.
A Chapter 7 Bankruptcy Filing Might be the Right Option for You If…
- You pass the means test in your state (based on your income and expenses).
- You do not anticipate that your financial situation will materially improve in the near future (e.g. you do not expect a sizeable inheritance, etc.).
- Most of your debts are unsecured.
About Chapter 11 Bankruptcy
While Chapter 11 bankruptcy is typically filed by businesses, it is also an option for individuals who do not want (or more likely) do not quality filing for either Chapter 7 or Chapter 13 bankruptcy.
A Chapter 11 bankruptcy filing involves proposing and, upon court approval, executing a structured debt reorganization plan over a period of time. While there is no set duration for the plan’s execution, it is often carried out over 3-5 years. Once the plan is dutifully fulfilled, the debtor is discharged from bankruptcy and creditors cannot pursue or resume debt collection. It is also possible during the execution phase for debtors to petition the court to change the plan, such as to accelerate payments for a quicker discharge, or reduce payments due to unforeseen financial hardships.
A Chapter 11 Bankruptcy Filing Might be the Right Option for You If…
- If you haven’t made a regular mortgage payment in over a year, and do not think that you can pay back overdue amounts (above your regular mortgage payments) over the lifespan of the reorganization plan.
- You want or need to “cram down” the value of any vehicle financed more than 910 days of the petition date to market value.
- You have recently been discharged from either Chapter 7 or Chapter 13 bankruptcy, and therefore cannot file for either until the waiting period expires (2 years after discharge for Chapter 7, and four years after discharge for Chapter 13).
- You have certain non-dischargeable debts, such as domestic support or personal liability for payroll taxes, that you want to include in the reorganization plan.
About Chapter 13 Bankruptcy
Chapter 13 bankruptcy is similar to Chapter 11, in that individuals propose to the court a reorganization plan for resolving some or all of their unsecured debt over a period of 3-5 years. However, there are some important differences between the two options. While virtually anyone can file for Chapter 11, only those with a stable income can file for Chapter 13. Furthermore, while appointing a trustee is mandatory for Chapter 13, it is optional for Chapter 11. And while there is no limit to the length of the reorganization plan under Chapter 7, the duration is capped at 3-5 years for Chapter 13. Finally, significantly more debt can be discharged under a Chapter 13 filing than a Chapter 11 filing.
A Chapter 13 Bankruptcy Filing Might be the Right Option for You If…
- On the date of filing, you owe less than $383,175 in unsecured debt, and less than $1,149,525 in secured debts.
- You have a stable income and can commit to a reorganization plan lasting 3-5 years.
- Your income is high enough that you do not pass your state’s means test for a Chapter 7 filing.
- You are behind on your mortgage and may be facing foreclosure.
- You want or need to keep the property that you are making payments on under the plan.
Learn More About Chapter 13 Bankruptcy
To learn more about the advantages and potential drawbacks of filing for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, contact the Law Office of Charles H. Huber a call today. We have over 30 years of experience in filing consumer bankruptcy cases. Our experience is your advantage!