Most people have heard the terms “Chapter 7” and “Chapter 13” thrown about but are not sure of the difference. Don’t worry – here is what you need to know.
Chapter 7
This is what is referred to as liquidation bankruptcy. It is designed to wipe out your general unsecured debt (with important exceptions, such as student loans, alimony or child support). The type of debt that would typically be eliminated in a Chapter 7 filing would include credit card debt, personal loans, and medical bills.
In a Chapter 7 filing, the court will appoint a trustee to administer your case. The trustee will review your filing and supporting documentation, and, if need be (based on your available assets), arrange for the disposal (sale) of your non-exempt property to pay back your creditors. Massachusetts has specific limits on what type of property (and it’s value) that you are allowed to keep. We will advise you on what these limits are, how they could impact you, and help you determine how to handle this, if it becomes necessary. If you have non exempt assets or exceed the median household income limit for a family of your size, then you would need to consider filing a Chapter 13 instead of a Chapter 7.
Chapter 13
Chapter 13 is what is called a reorganization bankruptcy, designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan. A Chapter 13, also allows you to “catch up” on missed delinquent mortgage and car payments, by forcing the lender to take these catch-up payments over the next 3-5 years. This is also true for taxes, while completely eliminating wholly unsecured junior liens from your home.
For people with considerable property, Chapter 13 has the other advantage of allowing you to keep all your property, including non-exempt assets. In return, you agree to pay back a portion of your debts through the Chapter 13 plan. We determine what that amount is, not your creditors, and all future interest and penalties stop as of the Chapter 13 filing date. The payments will depend on your income, expenses, and the type of debt you have. Typically, Chapter 13 bankruptcy is for those who have the ability to make monthly payments to get caught up on missed mortgage or car payments or pay off non-dischargeable debts such as delinquent income and taxes.
