Should I File Chapter 13 or Chapter 7?

Chapter 7 or 13?Due to the recent economic crisis, many Georgians have found themselves in the situation where their income is not keeping pace with their bills, with the result that they are unable, or it is very difficult for them, to pay their debts.   From credit card bills to medical expenses to everyday costs such as mortgages, car payments, food, and other essentials, more and more Georgian residents are turning to bankruptcy as their solution to become debt-free and more financially secure.  While filing for bankruptcy can achieve these goals, it may also carry with it long-lasting consequences that people should be aware of before they begin the process.

Before embarking on the bankruptcy process, it is important to first decide which type of bankruptcy best suits your needs.  Individuals are eligible to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

What is a Chapter 7 Bankruptcy?

The purpose of the Chapter 7 bankruptcy is to allow the bankruptcy applicant (called a debtor) to discharge (i.e. wipe out) the applicant’s debts such as pending medical expenses and credit card bills.  When a debtor files for Chapter 7 bankruptcy, the case is assigned to a bankruptcy trustee whose job it is to oversee the case and sell any of the debtor’s nonexempt property in order to pay back the creditors as much of the debt owed as possible.

Debtors can normally file for Chapter 7 after they pass the means test.  If a debtor makes what the bankruptcy court believes to be too much money for a Chapter 7, the debtor’s Chapter 7 petition will either be dismissed or be converted to a Chapter 13 petition.

If a particular debtor has a very high amount of credit card debt and very little or no access to regular income, filing for Chapter 7 may be very beneficial as a successful filing will allow the debtor to emerge from the bankruptcy process with a clean financial slate.

What is a Chapter 13 Bankruptcy?

Chapter 13 is referred to as a “reorganization” bankruptcy wherein debtors who have access to regular income establish a repayment plan in order to pay off at least part of their bills.  The bankruptcy court helps the Chapter 13 debtor come up with the plan to pay back all or part of the debt by looking to the debtor’s bills, household expenses, and regular income. Chapter 13 can be really helpful to debtors who genuinely wish to repay their debts and just need a little bit of help and more time to do so.

Unfortunately, there are a number of debts that are very difficult bordering on impossible to discharge through any bankruptcy filing.  Student loan debt, child support, and alimony are some of the most notable forms of debt that cannot be forgiven or discharged absent very, very extraordinary (and exceptionally rare) circumstances.

How Do I Know Which Type of Bankruptcy is Best for My Case?

When deciding which type of bankruptcy to file, debtors must look to a range of factors and consider the implications of each type of petition.   Often, due to the debtor’s access to income, the debtor is only eligible to file one type of petition because of the restrictions on filing Chapter 7.  However, many debtors do not know how to ascertain whether they qualify for Chapter 7 or if they need to file Chapter 13.  This is where consulting with a highly knowledgeable bankruptcy attorney can really help.  Contact our office today to speak to one of our attorneys who can explain these issues to you and assist you with your case.