Chapter 7 or Chapter 13
For consumers who are thinking about filing for bankruptcy, the advice of which chapter to file from an attorney is the most critical piece of information right from the start. The difference between Chapter 7 and Chapter 13 is significant. Chapter 7 is known as a fresh start which allows for the elimination of miscellaneous, unsecured debt such as credit cards, medical bills, personal loans, utility bills and debts for other types of services. The case typically lasts no longer than four months and most debt will be eliminated with the exception of student loans, parking tickets, recent taxes, child support, maintenance, and other nondischargeable debt. Chapter 13, on the other hand, is a debt reorganization plan which will last anywhere from 3 to 5 years. The debtor is required to make monthly payments to a chapter 13 trustee of all of his or her disposable income per month. The trustee then pays the creditors pursuant to a plan which is filed and confirmed shortly after filing.
Chapter 7 Recommendation
As you can see, the difference between a fresh start, which is almost immediate, and a reorganization plan, which will last 3 to 5 years is a tremendous difference. The debtor is relying upon the expertise of the attorney to guide them and advise them as to the proper filing. There are so many problems that can occur by filing a case under the wrong chapter. Let’s begin with filing a chapter 7 when the debtor is not eligible. There are certain income requirements or guidelines which enable one to file a chapter 7 fresh start. There is the statutory means test which is a mathematical test to determine whether someone has the ability to repay a portion of his debt over time. This figure is based upon family size, income, and IRS guidelines for items such as food, clothing, housing, transportation and the like. There is also the second prong to the test which is whether or not the debtor has available income per month. If the debtor fails either one of these two tests, then the chapter 7 case will either be converted to a chapter 13 or dismissed on a motion by the United States Trustee.
Chapter 13 Recommendation
Let’s now look to the chapter 13 issues. If the debtor does not have the income to support a chapter 13 plan, then the case will never get very far from the starting point. Many debtors, in an effort to save property, propose a chapter 13 plan when it is completely un-feasible. They simply do not have the income above and beyond their monthly expenses to fund the plan. The proper advice from an attorney should be to advise on chapter 7 when a chapter 13 is unfeasible. However, many attorneys will make an effort to have a chapter 13 plan confirmed. They feel that they are satisfying the clients’ desires as well as earning a potential fee under Chapter 13 bankruptcy law. In my opinion, if the case does not have a realistic chance for success at the outset, then I would discourage a chapter 13 filing.
Experienced Bankruptcy Attorney
As you can see, there are many variables that go into determining or analyzing whether a chapter 7 or Chapter 13 bankruptcy is appropriate. This is not a simple issue whatsoever. The attorney has to have the expertise and experience to understand what works under Chapter 7 and what works under Chapter 13. It is quite a disservice to advise somebody to file under an inappropriate chapter which is going to lead to a terrible result. This is where the expertise of the attorney comes into play. Be careful about hiring an attorney who doesn’t have significant experience in both chapter 7 and Chapter 13 cases. The advice that you receive from the beginning will make a significant impact on the total outcome and end result of your case.
