Bankruptcy – the Difference between Chapter 7 and Chapter 13
There are over a thousand pages of the bankruptcy code, so below is a simple explanation of Chapter 7 and Chapter 13, the two main types of bankruptcy that individuals file.
What Are Chapter 7 and Chapter 13?
When individuals file for bankruptcy, it is usually Chapter 7 or Chapter 13. Individuals may also file Chapter 11, but it is generally for corporations with very large debts.
This is the most basic type of bankruptcy. It gets rid of most unsecured debts, including medical bills and credit cards; however, it will not save your home from being foreclosed or your vehicle from being repossessed if you’ve been remiss in making the monthly payments.
You may be allowed to hold on to some assets, and it does stop lawsuits and garnishments. Take note though that you might be making too much to be eligible. Not everybody is qualified to file Chapter 7 bankruptcy.
This pertains to a reorganization type of bankruptcy that is typically effective for three to five years.
Chapter 13 bankruptcy can allow you to continue paying your mortgage or your monthly car loan installments to slowly settle your arrears, essentially stopping foreclosure or vehicle repossession. In case you have a second mortgage, this may also let you strip a lien, turning it into an unsecured debt so that you pay none or very little of it.
By filing a Chapter 13, you may surrender real property that you wish to no longer keep, preventing the mortgage holder from hounding you. It will also halt IRS levies, in case you owe income taxes, and allow you to settle the debt within five years.
As a rule, Chapter 13 lets you hold on to things you want to resume payment on, such as vehicles and houses; surrender things you no longer want to pay for; as well as pay none or little of your unsecured debts, including medical bills, signature loans, and credit cards.
How Much Are Bankruptcy Fees in Arizona?
Faced with financial problems, individuals interested in filing bankruptcy are naturally concerned about the cost of doing so. The expense can be broken down into costs set by law and attorney’s fees.
Chapter 7 Fees
The Chapter 7 Liquidation filing fee is currently set at $335. The law requires you to undergo credit counseling before you file bankruptcy. You also have to take a personal financial management course before you get your Chapter 7 Discharge. These two steps roughly cost $20 each.
Attorney’s fees can vary, depending on the client’s financial history and condition. The complexity of the case dictates how much time and effort the bankruptcy lawyer has to put in. Besides this, there may be other costs, including the importation of your credit report into the attorney’s bankruptcy software and miscellaneous charges covering photocopies, shipping, etc.
Chapter 13 Fees
The Chapter 13 filing fee is currently set $310. There is also a requirement to pay the Chapter 13 Trustee 10% of the plan payments besides their regular monthly payments.
Bankruptcy lawyers charge a determined fee that is approved by the US Bankruptcy Court.
Additional fees may be charged in connection with your defense against various challenges that may be filed by your creditors and/or the Trustee, such as:
– Means test challenges
– Objections to exemptions
– Objections to confirmation
– Objections to dischargeability and/or discharge of debt
– Motions to dismiss
Consult a Bankruptcy Lawyer
This just gives you a general idea of the difference between Chapter 7 and Chapter 13 as well as the cost of filing them. For a better understanding of what’s involved in filing bankruptcy, contact Pew Law Center.