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THE DIFFERENCE BETWEEN CHAPTER 7 & 13
In chapter 7 the debtor’s assets and liabilities are essentially frozen with the filing the bankruptcy.
Compare chapter 7 and 13
The debtor keeps the exempt assets (click here for a list of Arizona exemptions) while the bankruptcy trustee liquidates the non-exempt assets and distributes the proceeds to the existing unsecured creditors. The debtor is then relieved (discharged) of the duty to pay most existing debts and the debtor’s future earnings cannot be seized by the existing creditors. Lenders with loans on a house or vehicle are either paid as agreed or the items are surrendered to the lender.
Compare that to a chapter 13, which focuses on future income rather than on existing assets.
The debtor can keep all of their assets and pay creditors out of their future income. Monthly payments are made to the bankruptcy trustee, who pays the arrears on home, vehicles, taxes, child support; then, only if there is money left over, the trustee pays some monies to the existing unsecured creditors. This is done through a court-approved plan which lasts for 3 to 5 years. At the end of the plan the balance of the unpaid debts that were included in the plan are forgiven (discharged).
Some debts survive the chapter 13 – such as student loans.
A few debtors must file chapter 13 because they earn too much money. The means test contained in this form and required by the Bankruptcy Code will help Ms. Drain with this analysis. The good news is that a chapter 13 bankruptcy often allows the debtor to save their home, remove junior liens on their homes and pay off their vehicles.
The number of wives’ tales about bankruptcy are far too numerous to count; below are just a few. This list could go on and on for several pages. Each time I talk to a new client they have a new tale to share. My warning is talk to a good bankruptcy attorney – most offer a free consultation.
Read the articles on how to find a good attorney and how expensive it is to hire a bad attorney.
IF I FILE A CHAPTER 13 I HAVE TO PAY ALL MY DEBTS
FALSE. In a chapter 13 you pay the amount you need to pay in order to cure the arrears on your home, pay off certain back taxes, pay off back child support and alimony and pay off your vehicles. If your income is above the median income then you will pay a portion of your income for the period of your plan.
IF I FILE A CHAPTER 13 I WILL NEVER BE ABLE TO BUY A HOME OR CAR.
FALSE. While it is a challenge to buy or sell property during your chapter 13, it is not impossible. There are procedures that must be followed that you attorney can explain. There are issues about financing a house or car while in a chapter 13 (must get a court order).
I CANNOT KEEP MY HOUSE OR CAR IF I FILE BANKRUPTCY
TRUE and FALSE. You can keep your house or vehicle so long as it is worth less than the exemption allowances. Also you can keep it so long as you pay any secured lender.
FALSE. Unless you believe that having open heart surgery is simple. A chapter 13 is one of the most difficult bankruptcies. In Arizona less than 2% of those who file without an attorney are successful. The failure rate is in the 60 to 80 percent of those file hire inexperienced or bad chapter 13 attorneys.