Tag Archives: Chapter 7 or Chapter 13 Bankruptcy

How is Chapter 7 different from Chapter 13 Bankruptcy?

When consumer confidence is high and the financial markets are doing well it may be time to drop some of your financial dead weight to clear space for new jobs, more money and less debt. Many people have added it all up and said, “If I only had this amount of extra money, I could clear everything up and actually start getting ahead.” What do you do about those bad decisions or unfortunate situations that were not your fault, but still have a hefty price tag? When you are saddled with debt you cannot pay, you may start thinking about bankruptcy options. Do not be dissuaded by the anti-bankruptcy ads on television, paid for by debt repayment and restructuring companies. Most of them do not get people the fresh start they need to really be successful. If you want to get out of debt and do it right, there are two consumer bankruptcy options for you, Chapter 7 discharge and Chapter 13 restructuring.

What are the differences between Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 is a liquidation bankruptcy. When you qualify for a Chapter 7 liquidation (or think of complete discharge) you can literally wipe the slate clean. Note that only certain debts may be discharged, such as court judgments against you, credit card debts and loans you cannot pay. You cannot however get rid of child support obligations, student loans or certain tax or municipal fines.

Chapter 13 is a reorganization bankruptcy. If you do not qualify for a Chapter 7 discharge, you may be able to file a Chapter 13 petition for bankruptcy. You will be able to repay a portion of your debts, every month, over time. In a Chapter 13 you get to keep all your property, including non-exempt assets. When you have the income to pay debts, but need some time to spread it out and get caught up, a Chapter 13 can be your best path to financial freedom.

Note that when you file a Chapter 7 or Chapter 13 Bankruptcy, the Automatic Stay provision kicks in which prevents bill collectors from doing anything to collect a debt while you are in bankruptcy. In a Chapter 13, you pay the Bankruptcy Trustee every month and they make the negotiated payments on your debts. For people who want to keep their house and other valuable assets and still get bankruptcy relief, Chapter 13 is a great thing.

How do I know whether I qualify for Chapter 7 or Chapter 13 Bankruptcy?

To qualify for a Chapter 7 Bankruptcy, and get a full discharge of qualified debts, you must show financial need and hardship through a means test calculation. Your bankruptcy attorney can do the math and let you know whether you qualify. In the event, you do not qualify for a Chapter 7, you can always file a Chapter 13 bankruptcy instead. Let’s say you make just a little bit too much money or have a little more equity in your home you want to preserve, the Chapter 13 will still help you and you will repay only a portion of your debts over time.

How long will a Chapter 7 or a Chapter 13 Bankruptcy take to be completed?

A Chapter 7 Bankruptcy can be filed and discharged within several months. Your bankruptcy attorney collects all the necessary information, files the petition, appears with you at the Notice to Creditors Meeting, after which time you wait to see if any of your creditors file any objections to your bankruptcy. In a few months, you have a full discharge. In Chapter 13 Bankruptcy, you can get caught up on missed payments and non-dischargeable debts over a three to five-year period.

What steps can I take to make sure I have good credit after my bankruptcy case?

When preparing for credit worthiness after bankruptcy, remember that the only thing that matters is what you do with your finances after the bankruptcy. Your credit score determines how risky it may be to lend you money or credit. To reduce that risk, many companies offer secured credit cards. Anyone can get a secured credit card by paying a deposit of $200. If you never pay the bill, you forfeit your deposit. Without a bunch of missed monthly payments, there is nothing to negatively affect your credit score. Keep up with the secured card and you will start receiving regular credit card offers in no time. Buy a new car or a new home in a handful of years after a bankruptcy. There are many people who tell success stories about the new opportunities they seized after getting out from behind the eight ball.

If you have a question about any of the bankruptcy details mentioned in this article, it costs you nothing to call Joseph Wrobel, Ltd. and find out what bankruptcy law may mean to your financial future.

About us: Joseph Wrobel, Ltd., works with clients to find out if they qualify for Chapter 7 or 13 bankruptcy, and their options and rights under the law. The firm will also advise and assist clients with questions and concerns about the collectors and their rights to pursue you.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start.

Don’t forget to keep up with us on Facebook, Twitter, LinkedIn and Avvo, where you can read client and peer reviews!

 

Debt settlement pitfalls and issues, get it in writing

When deals look too good to be true, they probably are. Credit card companies and bill collectors may reach out and offer settlement “deals” to customers who owe them money. Unfortunately, many dishonest bill collectors out there make deals with customers and then completely fail to honor those agreements once the money is paid. With some collection agencies, the customer must be late in their payments to qualify for a partial settlement. If you qualify for a settlement with a partial payment, and you make an agreement over the phone, enforcing that agreement can be difficult. There may also be income tax consequences and liabilities for settling debts for less than you owe, and in many instances, the creditors do not tell people about tax consequences.

Creditors may offer partial settlements when they are otherwise ready to file a lawsuit against you.

The companies who own the consumer debt you owe, on a credit card, for example, have a limitation of five years to file a lawsuit in court to seek a judgment against you. Having said that, they can continue with debt collection forever if they do not obtain a court judgment. If the debt has been unpaid for years, and it is getting close to the time when the collector has the option to file a lawsuit against you, they may reach out and offer a settlement of the debt you owe, sometimes taking 50 to 70 percent off the entire balance, if you pay in full. At the time, if the creditor is threatening a lawsuit they are doing so because they think you will pay the settlement amount to avoid a trip to court and a judgment entered against you.

Make sure to get the deal in writing.

The deals many creditors offer requires the partial payment to satisfy the debt be paid in one lump sum. Others may accept payments over a short time, but the overall deal will not be as good. It is very important, if you make a deal with the creditor, to pay a partial amount in settlement of the entire debt, that you get an agreement in writing. Too often, the deals are made over the phone and once the creditor receives your partial payment, they sue you anyways or continue trying to collect from you, even when you thought you had an agreement.

There are credit score and potential tax consequences of settling a debt.

The policy of some credit companies is to offer settlements once debts have become delinquent, either 60 days or longer. If you have a high credit card balance and interest and you have been paying on time, your credit score might have to suffer late payment marks before you may be eligible to participate in a deal to settle your debt for a partial payment. Likewise, with the necessity to get the agreement in writing, make sure the agreement states that the creditor will promptly notify all the credit agencies.

The IRS considers a debt owed, that is written off, to be income. Income from a settlement that exceeds $600 must be reported when you file your taxes. Most creditors in the business of collecting and settling debts will send you an IRS Form 1099-C to file with your taxes, reflecting the write off amount as taxable income. It is important to keep track of tax liability for settled debts, to protect yourself in the event the creditor never sends you a form, or sends a form to the IRS but not to you.

Bankruptcy can be an alternative to court judgments and collection agreements.

While some bill collectors will work with customers and give them written agreements with fair terms, many others take what they can get and run, or sue you anyways. If you do get sued for a debt collection and the company is threatening to take your property, wages, tax returns or more, a Chapter 7 or 13 bankruptcy filing can stop them in their tracks. As soon as bankruptcy petition is received by the bankruptcy court, the automatic stay provision takes effect, making it a federal crime for a collector to continue pursuing collection efforts against you while you are in bankruptcy. You may be eligible for a Chapter 7 full discharge, or a Chapter 13 structured reorganization plan, paying debts back over time, often pennies on the dollar.

Joseph Wrobel, Ltd., works with clients on consumer issues including bankruptcy and they can offer additional information to find out if you qualify for Chapter 7 or 13 bankruptcy, and your options and rights under the law.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start.

Don’t forget to keep up with us on Facebook, Twitter, LinkedIn and Avvo, where you can read client and peer reviews!