This has always been a tough question to answer, because it is so case specific. Each one has its advantages and disadvantages, so that for many people, Chapter 7 bankruptcy is a much better option, For others, Chapter 13 would be their recommended course of action. Even if you have your mind set on one or the other, it’s important to discuss both alternatives with your bankruptcy attorney in case there are significant advantages or disadvantages you didn’t know about.
The biggest difference between Chapter 7 and Chapter 13 is that Chapter 7 focuses on discharging (getting rid of) unsecured debt such as credit cards, personal loans and medical bills while Chapter 13 allows you to catch up on secured debts like your home or your car while also discharging unsecured debt.
Chapter 7 looks at the assets you own at the moment your case is filed, protects those assets which are “exempt”— generally everything you own—and discharges most or all of your debts. Chapter 13 also looks at your financial life as of when your case is filed but focuses more on a repayment plan to deal with any secured debt (house, car etc.) that you are behind on while also discharging most or all of your unsecured debts.
There are certain types of debt that are not discharged in bankruptcy, such as recent income taxes, all child and spousal support, student loans, and a few others. Under Chapter 7, if you have any of these debts, you need to deal with them after your case is finished. This may be fine if the surviving debt is relatively small and discharging your other debts has made dealing with it manageable. Additionally, many types of unsecured debts are discharged under Chapter 7 bankruptcy. These include medical debt and credit card debt.
Under Chapter 13, you can arrange to pay those kinds of special debts through a court-approved repayment plan which usually gives you more control, is based on what you can afford, and protects you from all your creditors throughout the process.
This continued protection can be especially important because otherwise, the law tends to give these kinds of creditors extraordinarily aggressive collection powers. Also, in some cases—such as income taxes—you will be able to pay less by avoiding ongoing interest and penalties.
With Chapter 7, you are generally allowed to either keep or surrender any collateral. So you can decide that you can no longer afford your mortgage or vehicle payment and give up the house or car and discharge the remaining debt. Or you can arrange to continue making the payments and keep the collateral. If you are behind on those payments, you will have limited time to catch up, depending on the discretion of the creditor.
Contrast that with Chapter 13, under which you can usually stretch out payment of your mortgage or vehicle arrears over the entire three-to-five year repayment plan. Also, you may be able to save a tremendous amount by “cramming down” the balance on an older vehicle loan to the value of the vehicle.
Summarizing Chapter 7 vs. Chapter 13 Bankruptcy
Generally, Chapter 7 is more appropriate for simple cases while Chapter 13 for more complicated bankruptcies. Or somewhat more accurately, Chapter 13 can give you more power over and flexibility with certain kinds of creditors, and if you have non-exempt assets. However, if you do not have those kinds of debt or assets, or not much in terms of tangible assets, then Chapter 7 would likely be the faster and easier option.
The short answer is yes. Many people view bankruptcy as a financial apocalypse. Fortunately, that view does not represent reality. Instead, bankruptcy offers legal relief to assist those in unfortunate financial circumstances for which they may have no other way out. What about getting a loan after bankruptcy is over? Done responsibly, this may be a way to improve credit score. Of course, seeking a loan or credit after bankruptcy will reveal the bankruptcy case. This will affect the lender’s decision to approve the loan or extend credit
Typically, lenders may offer less favorable loan terms such as a higher interest rate. On the other hand, lenders may be more inclined to make a loan or extend credit to someone whose credit report shows debts discharged in bankruptcy, as opposed to someone whose credit report shows current financial problems such as on-going debt collection action by creditors, defaults, late/missed payments, delinquencies, judgments, wage garnishments, etc. Those who clear debt by receiving a bankruptcy discharge should be better positioned to obtain credit/loans compared to persons with continuing debt problems. Even so, obtaining a loan to rebuild credit after bankruptcy can be challenging.
Student Loan debt has reached astronomical levels in the U.S. with 44.7 million Americans carrying an estimated $1.71 trillion in education debt. The average class of 2022 graduates left school with $31,900.00 in student loans. Recent developments in the law, however, have made it easier and more likely to receive a discharge on student loans through bankruptcy.
In November of 2022, the U.S. Justice Department, in close coordination with the Department of Education, announced a new streamlined procedure for cases in which individuals seek to discharge their federal student loans in bankruptcy. The process has translated into increasing numbers of eligible federal student loan borrowers seeking and obtaining debt relief under the Bankruptcy Code. Prior to the DOJ Guidance, it was virtually impossible to receive a discharge for Student Loans under Bankruptcy. A person would essentially have to be physically unable to work and / or have little to no chance of making an income to pay off the student loans. That standard has been relaxed significantly.
The new guidance set by the Department of Justice reduced the burdens of achieving a Student Loan Discharge by simplifying the fact gathering process through a form attestation. If the debtor’s current expenses, based on IRS standards, are greater than monthly income, debtor does not have the ability to pay and the debt may be discharged. Expenses are based on the IRS National and Local Standards.
Several factors the Department of Education would consider include likelihood of future ability to make payment. Factors include age, periods of employment, and whether debtor actually obtained their degree. Another factor is whether or not the debtor has made good faith effort to pay the loans in the past.
The overall number of court judgments providing full or partial discharge have continued to increase, with the number of such judgments over the last six months exceeding the number of judgments for the preceding 12 months. Borrowers continue to embrace the new process set forth in the guidance in large numbers. In filed cases, 96% of all borrowers are voluntarily using the streamlined process, which includes a standard attestation form that allows borrowers more easily to identify and provide relevant information in support of their discharge request.
Multiple bankruptcy courts have adopted procedures recognizing the utility of the new process, aimed at further streamlining the procedures debtors must follow to obtain discharges. Consult a skilled attorney to see if these new shifts in the law can allow for your Student Loan debt can be discharged.
Alex D. Sanders Law handles bankruptcy cases in the Middle District of Georgia. In most cases, a bankruptcy must be filed in the district in which you live.
The Middle District covers a large area across the State from Southwest Georgia to Northeast Georgia. The counties in middle Georgia that fall within the Macon District include the following:
Baldwin, Bibb, Bleckley, Butts, Crawford, Dooly, Hancock, Houston, Jasper, Jones, Lamar, Macon, Monroe, Peach, Pulaski, Putnam, Twiggs, Upson, Washington, Wilcox, Wilkinson
I often meet clients who are stuck with a very high car payment on a mediocre car. After approximately 30,000 miles, a vehicle begins to rapidly lose its value. Under certain situations, you may use a Chapter 13 Bankruptcy to lower these payments based on the actual value of the vehicle and not the loan balance. This is called a cramdown. A cramdown allows you to pay off the value of the vehicle, and not the balance. It is available only if your loan is more than 910 days old, or about 2 and a half years. Of course, it depends on year, make , model, and other factors. Alex Sanders can analyze the situation and point you in the right direction!
In most cases, filing a Chapter 13 bankruptcy case will allow you to recover possession of a vehicle that has been repossessed. Because the buyer retains a right to redeem the vehicle after repossession, he/she still has an ownership interest in it. Therefore, the courts have held that it is part of the bankruptcy estate and must be returned to the buyer.
Once the vehicle is resold by the lender, however, it is almost certainly too late. If your vehicle has been repossessed, you must act quickly. Contact an experienced bankruptcy attorney. Make sure that he/she is prepared to file a case quickly. A good bankruptcy attorney knows that time is of the essence in this situation and will get a case filed right away.
Of course, recovering possession of the vehicle is only the first step. You must propose a feasible plan to pay the debt. Your attorney should fully evaluate your finances and develop a plan that you can live with. In some cases, you will only have to pay back the value of the vehicle rather than the full debt. In almost all cases, the interest rate will be significantly reduced.
So, if your vehicle has been repossessed, don’t give up. Get advice from a highly qualified bankruptcy attorney right away.
Section 523 of the U.S. Bankruptcy Code governs the dischargeability of taxes. Generally, taxes on income owed to a “governmental unit” are not dischargeable in bankruptcy unless they are owed for a taxable year for which a return was due more than three years before the filing of the bankruptcy case, and certain other requirements are met.
Often, some of the tax obligations are dischargeable, but the more recent taxes are not. In that case, the dischargeable portion can be wiped out in a bankruptcy, thereby substantially reducing the total obligation. However, even if your income taxes are not dischargeable in a Chapter 7 bankruptcy, you may be able to deal with them through a Chapter 13 plan. In many Chapter 13 cases, we are able to set up a plan to repay the taxes, while discharging other unsecured debts like credit cards and medical bills.
A Chapter 13 bankruptcy case allows an individual or married couple with regular income to deal with their debts by making regular payments to a Chapter 13 Trustee. The payments are made over a period of 3 to 5 years. The plan can cure an overdue balance on a home mortgage over a 60-month term. A Chapter 13 bankruptcy filing can also deal with many other short-term debts such as credit cards, car loans, and medical bills. This can free up funds so that future mortgage payments can be made in a timely manner.
A foreclosure occurs when a homeowner falls behind on their mortgage payments, the lending back will repossess the property. Typically, the bank will begin a foreclosure after 3 or 4 missed payments, but they can start the process after missing just 1 payment. After the bank notifies you, they are required to run an advertisement in the local paper for 4 consecutive weeks. On the first Tuesday of the following month, the house will be auctioned at the steps of the courthouse.
You may have seen advertisements from companies claiming to offer debt relief by “settling your debt,” “consolidating your loans and settling your accounts” or other similar phrase. These programs are not the services of bankruptcy attorneys, and they are not covered under the Bankruptcy Rules. Since these services operate outside the Bankruptcy Rules, they come with significant risks:
The single biggest risk of working with a debt settlement or loan consolidation company is the fact that hiring one of these companies does absolutely nothing to change the legal rights of you or your creditors. On the other hand, filing bankruptcy automatically protects you from collection actions by your creditors. The legal mechanism that instantly limits creditors’ rights when you file bankruptcy is called the automatic stay. The automatic stay does not exist for debt settlement or loan consolidation. Since those individuals are not protected by the automatic stay, they remain vulnerable to collection efforts, including lawsuits.
I have seen numerous examples of people paying debt consolidation companies thousands of dollars over several months, to only get sued and eventually garnished by a credit card company. If you are considering a “Debt Settlement Service”, I would highly advise consulting a bankruptcy attorney first!
There aren’t many worse feelings than receiving notice of a garnishment from a paycheck. Federal law allows creditors to deduct up to 25% of your hard-earned earnings. Filing Chapter 7 or Chapter 13 bankruptcy will stop wage.
It is important to remember that all sources of income are not garnish able. Federal law prohibits employers from firing employees whose wages are garnished. In addition, there are some benefits that a creditor may not garnish such as:
There are several types of bankruptcy, but Chapter 7 and Chapter 13 are the two most common types of bankruptcy that individuals struggling with debt can file. Chapter 7 bankruptcy involves selling property to pay back creditors, while Chapter 13 bankruptcy involves repaying debt through a bankruptcy plan. These two chapters may function differently, but they both have long-lasting negative impacts on credit and finances. And both are often considered last resorts.
In most cases, a Chapter 7 bankruptcy can stay on your credit reports for up to 10 years from the date you file bankruptcy. Once the 10-year period ends, the bankruptcy should fall off your credit reports automatically.
Chapter 7 bankruptcy is sometimes referred to as a liquidation bankruptcy. It happens when a debtor sells or liquidates their nonexempt possessions to pay back their creditors. In turn, they can keep certain exempt assets. After the bankruptcy process ends, the debtor’s remaining debts are discharged.
The definition of nonexempt and exempt possessions can vary by state, and there are also federal exemptions. Some examples of nonexempt possessions might include vehicles, jewelry or money in your bank account. Exempt assets can include someone’s primary residence, tools for work and Social Security benefits.
In most cases, Chapter 13 bankruptcy stays on a credit report for up to seven years after the bankruptcy filing date. Once the seven years have passed, bankruptcy should come off credit reports automatically.
Chapter 13 bankruptcy is sometimes called a reorganization bankruptcy because debtors can restructure their debts under court supervision and approval. That means individuals work with the court to establish a payment plan to repay creditors. When a payment plan is agreed upon and bankruptcy is initiated, any foreclosure proceedings stop and the debtor can typically keep their home.
Many people who are having financial difficulties know that they need help, and that filing bankruptcy may be their only option. Listed below are 6 keys for the preparation and filing of a successful consumer Chapter 7 or 13 bankruptcy case.
It is very common for people on a fixed income from Social Security to end up with judgments against them due to old debts such as credit cards and medical bills. Normally, when a creditor obtains a judgment, they can then take steps to collect such as garnishment of wages or bank accounts, or seizure (also known as levy) of property. Social Security benefits, however, have special protections under the law.
When a bank or credit union receives a garnishment notice, it must review the history of the account being garnished to determine if a benefit payment was deposited into the account during the previous two months. Within two business days of receiving the garnishment notice, the financial institution must notify you if the funds are protected from garnishment. If the funds are identified as Social Security benefits, the bank cannot freeze the funds. You must be given “full and customary access” to the funds. The bank cannot collect a garnishment fee from the protected funds.
Of course, even if the judgment creditor cannot garnish your bank account, it may take other steps to collect, including seizure of property. Most judgments act as a lien against your home, preventing you from selling or borrowing money against the property without paying off the judgment. If you are served with a lawsuit, it is critical that you get good legal advice immediately! Ignoring the lawsuit is never a good idea. Often times, filing an answer to a suit will buy you time to figure out alternative solutions to having your hard earned wages garnished.
Many people believe that their credit score is either good or bad, period! That simply isn’t the case. There are a wide range of credit scores which are determined by varying factors. Unfortunately, by the time most people consider filing, the damage has already been done. Filing for protection under Chapter 7 or 13 eliminates the line of bad financial history and allows the client to “start fresh.” While it’s true that the bankruptcy case will show on your credit report, it will only remain there for 7 years for Chapter 13, and 10 years for a Chapter 7. More importantly, your credit report will show your filing date and date of discharge, allowing all future creditors to know that your past credit history is no longer relevant.
Rebuilding your credit after bankruptcy isn’t overly difficult, but it can take some time. There are several things you can do to build it back to a respectable level.
If your retirement account is ERISA qualified, it is protected. Social security benefits are also protected by the Social Security Administration against garnishments.
It is illegal for private or government employers to discriminate against a person as to employment because that person has filed bankruptcy. It is also illegal for a civilian or government employer to punish or adversely affect employees who have filed for protection under Chapter 7 or 13.
Bankruptcy offers a lifeline for individuals drowning in debt, providing a fresh start and a path toward financial stability. However, not all debts are created equal. While bankruptcy can discharge many types of debts, but certain debts remain even after the bankruptcy process is complete. These debts, which are called non-dischargeable debts, are not typically cancelled by a bankruptcy. These are debt obligations which cannot be wiped out through bankruptcy. They remain enforceable even after the bankruptcy process concludes, requiring individuals to continue fulfilling their financial obligations. Common examples of non-dischargeable debt include:
Federal and private student loans are generally non-dischargeable in bankruptcy unless individuals can demonstrate undue hardship through an adversary proceeding. The adversary proceeding (AP) is a sperate lawsuit filed within the bankruptcy that typically requires numerous steps, including discovery and depositions. Undue hardship is a high legal standard and often challenging to prove, making it difficult for most borrowers to discharge student loan debt. The standard requires that the court find that not only can the debtor not afford to pay the student loans and maintain a minimal standard of living, but also that there have been reasonable attempts at paying the student loans and that there are also other factors that prevent the debtor from making payments (usually long-term illness, disabilities, etc.). However, recent developments in the law, however, have made it easier and more likely to receive a discharge on student loans through bankruptcy.
There is a common myth is that no tax debt can go away with bankruptcy. However, there are many tax debts that may be dischargeable under specific circumstances, such as income tax debt meeting certain criteria, other tax obligations are non-dischargeable. Non-dischargeable tax debts include recent income tax debts (typically within the last three years), tax debts associated with unfiled returns, and tax debts resulting from fraudulent activity. After discharge, the taxing authorities review any balances and make their own determination of the debts.
– Debts arising from alimony, child support, or other domestic support obligations are non-dischargeable in bankruptcy.
– Individuals remain responsible for fulfilling these obligations, ensuring the financial well-being of dependents. During Chapter 13 plan, a trustee cannot confirm a bankruptcy plan unless the Debtor is current with all support obligations and cannot get a discharge unless he has made all his support payments during the plan.
– Debts arising from court-ordered restitution, fines, or penalties imposed for criminal offenses are typically non-dischargeable.
– Bankruptcy does not absolve individuals of their responsibility to satisfy these legal obligations.
Debts resulting from judgments for personal injury or wrongful death caused by intoxicated (drugs and/or alcohol) driving are non-dischargeable. Additionally, debts incurred through fraud, embezzlement, or willful and malicious conduct are generally non-dischargeable. If there has been a court order/determination that the debtor falls into one of the non-dischargeable categories, the bankruptcy court usually will accept the finding of a previous court. However, if there was no court finding, the creditor can file an adversary proceeding (AP) and ask the bankruptcy court to decide that the debt falls into one of the other categories.
Debts resulting for Equitable Distributions (division of assets or debts) are not dischargeable in a Chapter 7, but may be discharged in a Chapter 13. The Court can review the situation to determine if there is any reason the equitable distribution is actually related to support and should actually be classified as a support obligation. If there is a court order related to the equitable distribution and awards attorney’s fees, those fees follow the same rule as the underlying debt.
In addition to non-dischargeable debts, creditors can object to the discharge of certain debts during bankruptcy proceedings. Under bankruptcy law, creditors must prove the debt fits one of these categories:
Bankruptcy law and Personal Injury law are interrelated areas of law in many ways. People can miss significant amounts of time while recovering from injuries sustained in an accident. This inevitably causes them to fall behind on their bills. It doesn’t take too long before their creditors threaten legal action, including foreclosure, repossession and constant harassment from creditors. Filing for bankruptcy protection will stop all forms of collection. However, failure to disclose a pending personal injury suit could result in zero recovery in that case.
In Chapter 13 Bankruptcy, your assets will be considered when determining the details of the debt repayment plan. In Chapter 7 Bankruptcy the bankruptcy trustee will take inventory of your total assets to try to pay the creditors as much as possible prior to discharge. You have a duty to truthfully disclose to the court our assets in full, including funds you have already received from a lawsuit, funds you expect to receive in a lawsuit, and funds to which you may be entitled, even if no lawsuit has yet been filed.
Even if you are afraid that the trustee will take your personal injury settlement to pay off your creditors, you still must ensure to disclose the potential settlement to the bankruptcy court. If you fail to do so, the defendant in your personal injury claim may be able to prevail in the case due to a claim of judicial estoppel. If you did not disclose your potential claim in your case, you could be prevented from recovering at a later date.
It is only natural that a person will want to assume the position that is most favorable to them. This can cause problems, however, if a party has two different cases in which opposite positions may be the most beneficial. The courts will not simply allow a party to maintain two different positions in two different cases and the consequences of doing so can be harsh, as the court can dismiss a claim under the legal doctrine of judicial estoppel.
The Supreme Court of the United States has held that three main factors must be identifiable for judicial estoppel to apply. First, a party’s later position must be clearly inconsistent with its earlier position. Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled. Third, the court will ask whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
This doctrine can apply to any type of case, including Chapter 7 and Chapter 13 bankruptcy cases. In recent years, the issue has arisen in cases in which the bankruptcy filer has also had an impending or already pending personal injury case. The moral of the story– be truthful to your attorney! If you have any questions about a possible bankruptcy, please call Alex D. Sanders Law for a free consultation.
Bankruptcy can stop a variety of lawsuits, particularly those related to debt. This is because bankruptcy creates a legal shield that protects you from creditors’ attempts to collect on outstanding debts. Examples of lawsuits that bankruptcy can stop include:
While filing for bankruptcy can provide relief from many financial obligations, it doesn’t halt all legal proceedings. Certain types of lawsuits are not stopped by bankruptcy. These exceptions are primarily related to personal conduct, family matters, and criminal offenses.
This is a possibility, depending on if your spouse is listed as a co-debtor on one or more loans. If they are listed as a co-debtor who is also responsible for the outstanding balance, they could be held liable be pressured to pay the debt. However, in Chapter 13, the debt can be repaid at contract rate and protect the codebtor.
Yes, you can. Just contact your attorney to file an amendment. You must provide the creditor’s information and pay a minimal fee (the fee is the same no matter the number of creditors you will be adding). The fee goes straight to the bankruptcy court for administrative fees. Alex D. Sanders Law charges no additional fees for the process.
Times between bankruptcies are as follows (dated from the last FILING date):
– 8 years between Chapter 7 cases
– 4 years between Chapter 7 and Chapter 13 cases
– 2 years between Chapter 13 cases
It is usually possible to refile under Chapter 13 after a case has been dismissed. However, you must be able to show that you have sufficient regular income to make the new plan feasible. If a car or other collateral has been repossessed, it can usually be recovered, so long as it has not been sold to a third party and the new plan provides for payment of the debt. The debtor typically has ten days from the repossession to get a vehicle back.
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