June 30, 2022

Should I File for Chapter 13 or Chapter 7 Bankruptcy?

Filing often comes with several advantages if you find a good bankruptcy lawyer. A reasonable attorney will ensure that the process is as smooth as possible, and they can help debtors eliminate stress from creditors.

In Pennsylvania, you can file for two types of bankruptcy. Here are some questions you need to ask before you file:

  • Which chapter do I qualify to file for?
  • Which chapter is right for me?
  • Will I keep my property?
  • What debt relief will I get?

Filing for bankruptcy will often help reduce stress from personal loans. You will be relieved when the bankruptcy court discharges your debts.

Understanding Chapter 7 Bankruptcy

As soon as you file, the court issues an order that stops the collection efforts of most creditors. Qualifying debts like medical bills, credit card debt, and personal loans or unsecured debt are discharged within about four months.

Instead, the court will appoint a bankruptcy trustee who will sell your non-exempt property.

Filing for Chapter 7 bankruptcy is ideal for clients with limited income, few assets, or clients who can protect a lot of what is in their house.

Sometimes you might lose your property if you file for it. It is worth it because the amount of debt you would clear by selling the property is greater than the value. Then, the bankruptcy trustee will use the sales proceeds to settle non-dischargeable debts.

How Do I Know if I Qualify for a Chapter 7 bankruptcy?

Before filing for it, you must take a means test. If you fail the first part of the test, you may still pass the second part.

The second part of the test considers your disposable monthly income. If you cannot pay creditors from your remaining income in a Chapter 13 repayment plan, you will qualify for Chapter 7.

What Property Will I lose in Chapter 7 bankruptcy?

In Pennsylvania, please ask your bankruptcy lawyer to use federal bankruptcy exemptions. However, if one spouse files for bankruptcy and you have substantial equity in real estate held wholly as a tenancy, there is a chance to protect the whole property.

Home equity

You have a better chance of using federal exemptions to get homestead exemptions in Pennsylvania.

Personal Property

Chapter 7 bankruptcy protects most of your household goods are protected, except for luxury items. However, Pennsylvania has a “wildcard” that will exempt some of your property up to $300. You can return your car to the bank to discharge your car loan.

Public Benefits

This type of bankruptcy protects most of the public benefits provided to you.

Retirement Plans

Retirement plans qualified by the Employee Retirement Income Security Act have significant protection.

Understanding Chapter 13 Bankruptcy

Chapter 13 bankruptcy is viewed as bankruptcy for a loan modification. Debtors that file for it usually receive regular income to pay back a portion of their debt.

Chapter 13 bankruptcy is for debtors who have the following:

  • They failed to qualify for Chapter 7 bankruptcy but need relief.
  • If they have debts like alimony or child support.
  • They would want to keep the property if they have mortgage arrears or have faltered in paying for their car loans.

Also, the trustee assigned to you uses your income to make payments to your creditors. You will also be paying the total amount of your repayment plan.

How Much Debt Will Be Discharged in Chapter 13?

The amount of your debt that will be discharged will depend on its type.

Non- Dischargeable

Up to a specific limit, you will be required to pay all of your non-dischargeable debt and the majority of your taxes and salaries, commissions, or wages owed to your employees. You will also be required to pay any employee benefit fund contributions that you owe.

Secured Debt

To keep the property under secured debt, you must pay all the arrears and keep up with the monthly payments.

Unsecured Debt

You will have to pay part of your nonpriority debts depending on what is left on your income. It will also depend on the value of the non-exempt property and how long your repayment plan is. You will usually have to pay for your non-exempt property in full.

How Long Will The Repayment Plan Last?

The repayment plan’s length will depend on your household’s gross income. You may propose a three-year plan if your gross household income is less than the state’s median annual income.

Can You Keep Your Home if You Are Facing Foreclosure?

You can pay the arrears on your home over the repayment period. However, you will need enough income for the monthly payments simultaneously.

Chapter 7 vs. Chapter 13: Which One Should I Choose?

How do you determine the correct chapter to file? Most people will prefer to go for Chapter 7 when they want to file because most of their debts are discharged.

Chapter 13 is optimum if you want to keep your house and are behind on your mortgage. It also allows you to force a creditor to let you repay support arrears and back taxes.

Looking for the best bankruptcy lawyer in Media, PA, to handle your case?

When you give us the case, we will help to resolve your financial struggles and discuss your financial future with you.

We also offer representation in loan modification, real estate, and personal injury law cases. For more information about our services, visit us at our law offices in Media, PA, Rising Sun, MD, or Staten Island, NY. You can also contact us at 610-255-7500 today to schedule an appointment with us.