Who Should File For Chapter 7 Bankruptcy?
While US bankruptcy law changed in 2005, the basic distinction between chapter 7 and chapter 13 bankruptcy remains intact.
Virtually all individual filers will file for either chapter 7 or chapter 13 bankruptcy, though the new code enacted in 2005 imposes restrictions on who may file for chapter 7 bankruptcy.
Those who are not barred from filing a chapter 7 bankruptcy still can choose between a chapter 7 or 13 filing, and most will choose chapter 7.
Chapter 7 vs Chapter 13 Bankruptcy We have been referring to these common forms of bankruptcy according to their placement in the US tax code, though they alternately may be distinguished by more descriptive names: liquidation bankruptcy and reorganization bankruptcy.
Liquidation, or chapter 7, bankruptcy, clears the filer of all eligible debts but may liquidate some of the filer's property.
Reorganization, or chapter 13, bankruptcy, does not take away any of the filer's property, but requires the filer to repay their debts over a period of time rather than wiping it all out.
Changes under BAPCPA Known as the Bankruptcy Abuse Prevention and Consumer Protection Act, the 2005 reorganization of the US bankruptcy code divides filers into the categories of those whose average monthly income falls above and below the median for their household size and state.
Recall that the median of a set is the middle number; the median monthly income for a given household size and state is that for which half of the households in the set have an income above and half below that amount.
People whose average monthly income falls above the median for a household of their size in their state can only file for chapter 7 bankruptcy if they pass the Bankruptcy Means Test, which assesses one's ability to complete a chapter 13 repayment plan.
Those who fail to meet the requirements of the test are required to file under chapter 13.
Chapter 7 Bankruptcy Liquidation (chapter 7) bankruptcy discharges most, but not all, debts; debts which are not generally discharged include: - back taxes - debts incurred in paying nondischargeable taxes - court-imposed fines, student loans - debts owed under alimony, or marital settlement, or child support agreements - loans owed to a pension plan - debts resulting from drunk driving injuries or deaths Reasons To File For Chapter 7 Bankruptcy The primary reason most people choose to file under chapter 7 bankruptcy is its greater ease compared to the chapter 13 repayment plan.
Most successful chapter 7 filings are closed within three to six months, with the result that the filer is cleared of all eligible debts except for mortgages, car payments, and the nondischargeable debts described above.
It has been found that the great majority of chapter 13 filers are unable to complete their repayment plan; these people have the option to convert their bankruptcy into a chapter 7 case, though any payments made under the chapter 13 repayment plan will have been for nothing.
So long as you are eligible under BAPCPA to file under chapter 7, it is generally advisable to do so unless you are sure of your ability to complete a chapter 13 repayment plan.
Virtually all individual filers will file for either chapter 7 or chapter 13 bankruptcy, though the new code enacted in 2005 imposes restrictions on who may file for chapter 7 bankruptcy.
Those who are not barred from filing a chapter 7 bankruptcy still can choose between a chapter 7 or 13 filing, and most will choose chapter 7.
Chapter 7 vs Chapter 13 Bankruptcy We have been referring to these common forms of bankruptcy according to their placement in the US tax code, though they alternately may be distinguished by more descriptive names: liquidation bankruptcy and reorganization bankruptcy.
Liquidation, or chapter 7, bankruptcy, clears the filer of all eligible debts but may liquidate some of the filer's property.
Reorganization, or chapter 13, bankruptcy, does not take away any of the filer's property, but requires the filer to repay their debts over a period of time rather than wiping it all out.
Changes under BAPCPA Known as the Bankruptcy Abuse Prevention and Consumer Protection Act, the 2005 reorganization of the US bankruptcy code divides filers into the categories of those whose average monthly income falls above and below the median for their household size and state.
Recall that the median of a set is the middle number; the median monthly income for a given household size and state is that for which half of the households in the set have an income above and half below that amount.
People whose average monthly income falls above the median for a household of their size in their state can only file for chapter 7 bankruptcy if they pass the Bankruptcy Means Test, which assesses one's ability to complete a chapter 13 repayment plan.
Those who fail to meet the requirements of the test are required to file under chapter 13.
Chapter 7 Bankruptcy Liquidation (chapter 7) bankruptcy discharges most, but not all, debts; debts which are not generally discharged include: - back taxes - debts incurred in paying nondischargeable taxes - court-imposed fines, student loans - debts owed under alimony, or marital settlement, or child support agreements - loans owed to a pension plan - debts resulting from drunk driving injuries or deaths Reasons To File For Chapter 7 Bankruptcy The primary reason most people choose to file under chapter 7 bankruptcy is its greater ease compared to the chapter 13 repayment plan.
Most successful chapter 7 filings are closed within three to six months, with the result that the filer is cleared of all eligible debts except for mortgages, car payments, and the nondischargeable debts described above.
It has been found that the great majority of chapter 13 filers are unable to complete their repayment plan; these people have the option to convert their bankruptcy into a chapter 7 case, though any payments made under the chapter 13 repayment plan will have been for nothing.
So long as you are eligible under BAPCPA to file under chapter 7, it is generally advisable to do so unless you are sure of your ability to complete a chapter 13 repayment plan.