Bankruptcy, Debt Negotiation, Wills & Personal Injury Representation

Which is better to retain property: Chapter 7 or Chapter 13?

On Behalf of | Jun 24, 2022 | Chapter 13 bankruptcy, Chapter 7 Bankruptcy

Louisianans may face financial challenges for many reasons. In the past several years, there have been medical concerns that have led to people dealing with enormous bills they cannot pay. People faced reduced income or lost their jobs entirely. Some went through a divorce. Currently, even though the worst of the health crisis appears over, the economy is experiencing a downturn with inflation, high gas prices and the renewed fear of job loss. With that, some might find they are unable to pay their bills. If they were barely keeping up, they can no longer do so.

Bankruptcy could be a viable alternative to solve financial problems. However, choosing which chapter under which to file can be complicated and confusing. Filing for bankruptcy is a perfectly legal and beneficial strategy to clear onerous debt and forward. Often, debtors have properties they want to retain and are unsure whether Chapter 7 or Chapter 13 is the preferred way to do it. The way in which these bankruptcy chapters are structured and how people can retain certain property differs, so it is useful to have advice when starting out. It can also be helpful to have guidance when thinking of changing the bankruptcy from one chapter to another.

What properties can be exempt under Chapter 7 and Chapter 13?

Chapter 7 is known as a “liquidation” bankruptcy. By that, it means that a person will need to surrender certain property to the bankruptcy trustee to be sold for creditors to be repaid. A person who owns a home, an automobile that still has market value, basics like clothing and furniture, jewelry that is below a certain value and more could lose those properties in the liquidation. Still, some properties are exempt and the person’s assets will be assessed when choosing Chapter 7 or Chapter 13 to select the right one for their situation.

Non-exempt property could be collectibles like artwork, baseball cards and coins; items that have been in the family and have inordinate value; a second home or automobile; and bank accounts and other items in a portfolio. In short, if the property is not worth enough to warrant liquidating it, then it will generally be exempt. A person who does not have major assets and what assets they do have are likely to be exempt might be better-served to use Chapter 7.

Under Chapter 13, for all intents and purposes, people are given what is comparable to a consolidation loan that will be repaid in three to five years. It is often referred to as a “wage earner’s plan.” Those who own a home and are behind on payments; have an automobile or second automobile that has value; want to retain their family heirlooms and collectibles and are fearful that they will lose everything in a bankruptcy can choose Chapter 13. The bankruptcy court will need to know how much the debtor has in disposable income. That will largely determine how much will be paid and if the person is eligible for Chapter 13 at all.

Bankruptcy can be useful to help clear debt, but knowing the process is vital

Other factors that are important when filing under Chapter 7 and Chapter 13 include the means test, whether the person has a job, and if they can make the payments that would be required under Chapter 13 or not. Once people have gotten beyond the negative assumptions they had about bankruptcy, it is still critical to make the right choice as to whether they should file Chapter 7 or Chapter 13 bankruptcy. Of course, every case is different and it is wise to know all the details and ramifications of a filing. Making the wrong choice can cause longer term problems and delay the discharge.

When saying enough is enough to the stress of debt, stopping constant calls from debt collectors and striving to move forward, it is imperative to have knowledgeable and skilled help. Consulting with professionals who have three decades of experience can guide a person to try and achieve a favorable result.