Chapter 7 vs. Chapter 13

Depending on your case, you’ll file either in a chapter 7 or a chapter 13 bankruptcy. Most people file chapter 7 bankruptcy, because it is the fastest and easiest way to get out of debt. Still, Chapter 13 is useful if you have extremely valuable property or if you’re trying to stop a foreclosure. This post will provide information each chapter.

Chapter 7 Basics:

Most people file a chapter 7 because it is the fastest and easiest way to get out of debt. As soon as we file your chapter 7 petition, you get the automatic stay. The automatic stay requires that all of your creditors stop calling you stop harassing you and stop trying to collect a debt from you. You will not lose all of your property in a chapter 7. This is a very common concern, but you should not worry about it. This is because the bankruptcy code is set up to protect your property and to give you a fresh start. In the unlikely event some of your property is subject to turnover, I can either structure your chapter 7 to protect that property or we can discuss putting you into a chapter 13.

You will not lose your house or your car in bankruptcy, if you can afford to keep making the payments. If you cannot afford to keep making the payments and you want to get rid of the house or car, then you can use chapter 7 to get rid of that property and get rid of the debt. If you are behind on house payments are car payments then, depending on the size of the missed payments, you can either come to an agreement with a creditor or we can file a chapter 13. If you’re making payments on something you want to keep it, then bankruptcy can help you do that.

About 30 days after we file your petition, we will attend a 341 meeting. The 341 meeting is in front of the chapter 7 trustee and usually takes 5 to 10 minutes. You will get your bankruptcy discharge approximately 60 to 90 days after the 341 meeting. The chapter 7 discharge applies to all the debts that you had before you filed your bankruptcy petition.

The chapter 7 discharge applies to all the debts were included in your bankruptcy. After you get a chapter 7 discharge, you are freed from all of the debts that you included in the bankruptcy. There are some exceptions to the chapter 7 discharge, most importantly child-support, alimony, and certain back taxes. Most debts they can’t be taken care of a chapter 7 can be taken care of a chapter 13. It only costs $100 to get your case started. In most cases, people take one to three months to pay the full filing fee. The attorney fee for a regular chapter 7 is $1200-$1500. In addition, you must also pay approximately $400-$600 in court costs and due diligence fees. In most cases, the total of attorney’s fees plus court costs is $1638 to $1663. Fee quotes are all inclusive.

Chapter 13 basics:

Chapter 13 is useful for many of my clients, because it allows them to save their house from foreclosure or get a discharge for debts that the chapter 7 discharge does not cover. In addition, the chapter 13 plan payment is affordable, because it is based on your income and living expenses. Chapter 13 allows you to pay less on your debts than you would if you tried to pay off your debts without doing bankruptcy.

The chapter 13 discharge covers more debts than the chapter 7 discharge. In particular, you can get a discharge for back taxes, and you can use chapter 13 to stop foreclosure on your house. Chapter 7 will do neither of those things for you.

Chapter 13 is less expensive and easier to manage than debt consolidation or trying to pay off your debts on your own. This is because interest rate on many of your debts will be frozen and your creditors must abide by the terms of your chapter 13 plan. This means that if some of your creditors only get pennies on the dollar, then there is nothing they can do about it. You cannot get repayment terms like these outside of bankruptcy.

When you are dealing with your creditors outside of bankruptcy, they don’t care about your living expenses; they want to get paid. It is just the opposite in chapter 13. The chapter 13 plan looks at your income, then deducts your expenses, whatever is left over goes to your creditors. This means that your chapter 13 plan payment is based on what is left over, after you have paid your other expenses.

The chapter 13 plan payment is based on your income minus your expenses. When I draft a chapter 13 plan for you, I will look at your gross income and then subtract all of your expenses such as taxes, rent, mortgage, car payments, insurance payments, and all your other living expenses. Whatever is left over is the amount you are required to pay to the plan. Finally, if your income goes down during the chapter 13 plan, then you can adjust your plan payments to reflect your new income.

Chapter 13 bankruptcy runs for 3 to 5 years, during that time you make regular payments to chapter 13 trustee. The chapter 13 trustee takes each payment and distribute to each of your creditors. You don’t have to worry about which creditor gets paid or how they get paid. Your creditors are required to accept whatever is given to them by the chapter 13 trustee. Your creditors cannot ask for any more than they receive through the chapter 13 plan.

Contact the Law Office of David H. Fuller, a Seattle bankruptcy attorney, for your free consultation.

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