Chapter 7 vs Chapter 13

Chapter 7

A chapter 7 bankruptcy plan involves asking the bankruptcy court to discharge certain debts. Some debts cannot be discharged and therefore debtor’s nonexempt property is liquidated with the cash then going to the creditors. Often there are not many assets that are not exempt from the liquidation so people filing chapter 7 do not usually end up losing much property. People with few nonexempt assets usually file for chapter 13 bankruptcy.

To be eligible for chapter 7 bankruptcy, your income must be below the average income of families in Maryland. If your income is above the state average, eligibility is determined by how much you have made in the last 6 months, then deducting certain expenses such as mortgage payments, child support payments, car payments, back taxes, and school expenses up to $1,500 a year. If after deducting these expenses and the living expenses as outlined in the IRS’s national collection standards, you are still able to pay at least $100 a month, you will not be eligible to file for chapter 7 bankruptcy.

The process for filing chapter 7 bankruptcy begins with filing an official petition, schedule and a statement of financial affairs in bankruptcy court. To complete said forms you must list all creditors, amount owed, and the type of claim. You must also provide information about your income, a list of property owned, and a list of your monthly living expenses. Once you have filed for bankruptcy, a stay goes into effect that prevents creditors from making direct contact with you and preventing possible litigation. A trustee will take control of your nonexempt property, and money earned from the sale of this property will go to your creditors.

A meeting of the creditors, called a 341 meeting, will take place about a month after you file. You must be present for this meeting, however most creditors will not attend. After the meeting, creditors have 60 days to convince the bankruptcy court that you should still be held responsible for the debts owed.

Chapter 13

Filing chapter 13 bankruptcy is useful for those who have few nonexempt assets or assets that are valuable but not completely covered by the exemption. Having a regular income is essential when filing chapter 13 because you must outline a plan to repay creditors over a 3 to 5 year period. The debtor is protected from legal action that might otherwise be taken during the time period established in which they are paying back the creditor. You may not have more than $1,010,650 in secured debt and no more than $336,900 in unsecured debt.

The Bankruptcy Court will assign a trustee. The trustee will then review the payment plan the debtor has created and make sure it is financially viable, in accordance with the debtor’s income and expenses. The plan is then given to creditors to review and decide if they find it reasonable. If it is approved you may keep your assets during the time it takes to pay off your debts. You will make payments to the trustee who will then distribute the money to your creditors. If the plan is completed on time, your unpaid debts are discharged.

With Bankruptcy, each case is unique, we strongly recommend you speak with a qualified Bankruptcy attorney to help you understand the best way to file Bankruptcy in Maryland.