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Are you contemplating filing for Bankruptcy? You need to understand the differences between the two main types applicable to most individual or joint debtors (persons who file a petition for discharge of their debts under the U.S. Bankruptcy law), chapter 7 and chapter 13.
In Chapter 7 Bankruptcy, also known as Liquidation, a court-appointed trustee reviews the debtor(s)’ estate for any assets that may have not been exempt from being sold to pay creditors, then the trustee would sell such assets to satisfy some of the debts. Debtors must pass the legally required ‘means test’, which checks whether the debtors’ income is higher than certain limits, to determine whether they’re eligible for chapter 7 bankruptcy. Debtors have the right to hold on to assets that have been exempt from being taken from them based on certain law-allowed exemptions that protect part of their property. There’s usually little or no nonexempt property in these cases to be sold. However, if any assets get liquidated by the trustee, only creditors holding unsecured claims (not supported by a collateral) and who have filed a proof of claim with the bankruptcy court for the particular debtor(s)’ case(s) would be eligible to receive any of the proceeds to satisfy all or part of their claims. In most chapter 7 cases, the debtor(s) receive a discharge in bankruptcy, a few months after the initial hearing, known as 341 hearing or meeting of the creditors, and have no more personal obligation for the discharged debts, as a result they get a clean slate or a fresh start.
Chapter 13 bankruptcy is better suited for debtors who have a regular income and want to keep their real estate assets, such as a house. The attractive feature of this type of bankruptcy is that the debtor(s) may propose a plan to repay their debts, according to their income, usually over five years. The proposed plan is submitted to the trustee overseeing the case, who then either accepts it or asks the debtor(s) to make modifications in order to submit it to the court for a confirmation hearing. If the plan gets confirmed, the debtor(s) will be making payments during the duration of the plan to the trustee who distributes them to the various approved creditors who have filed proof of claims with the court. The debtor(s) must complete all payments according to the approved plan in order to receive the discharge in bankruptcy in the end. In both chapter 7 and chapter 13 cases, once filed, the debtor(s) are protected through a ‘stay’ from creditor lawsuits, garnishments, or other attempts to collect debt through the time the case is pending and after discharge.
Pear, Sperling, Eggan and Daniels can help you determine which type of bankruptcy may be best for your situation. Please contact a bankruptcy attorney in Ann Arbor today at (734) 665-4441 for a free consultation.
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