Bankruptcy 7 13

Bankruptcy 7 13 both seek to satisfy both the creditor and the debtor through finding a way of settling the debts in an organized and least stressful way. The law seeks to protect both segments of the business world, the debtor and creditor.   

The US law provides for bankruptcy in Chapters 7 and 13. These two chapters provide guidelines on how to deal with bankruptcy and they both have different rules to follow. 

Chapter 7 Rules

Chapter 7, which might also be referred to as a straight bankruptcy, is a process:

•  whereby the assets of a debtor go through liquidation
• all the non-exempt property is handed over to the bankruptcy trustee
• the trustee then converts them into liquid cash that is distributed to the creditors
• the process takes about four months before the debtor is released from their debts
• if the debtor has relatively few assets to lose, Chapter 7 is the best option.  

In this chapter, the debtor is given a fresh start after short period of time. It will relieve the debtor of their financial burden quickly and they can resume their normal lives.  

Discharge Exemptions

There are some things that cannot be discharged for instance: 

• debt for trust fund taxes
• domestic support payments
• taxes that had been evaded by the debtor
• fraudulent returns

Chapter 13

Chapter 13 is also referred to as a reorganization bankruptcy. This bracket covers those debtors that want to settle their debts over a longer period of time, say three to five years. This is also an option for people who have a predictable and reliable form of income, and have non-exempt property that they may want to keep. The new bankruptcy law provides that individuals who have the ability to make monthly payments must file the Chapter 13.

Anyone wishing to file the Chapter 7 bankruptcy must meet the financial requirements stipulated by law. Individuals do not get to choose what type of bankrutcy they want to take, bankruptcy court does according to the means test. 

The Means Test

The Chapter 7 bankruptcy test works by first establishing the debtor’s average monthly income, then deducting his/her expenses.

After this deduction, the money that remains is then considered the disposable income that can be used to dispense the debt.

To get your average monthly income, calculate your total income for 6 months then divide this sum by 6 to get the average monthly income. If your disposable income is high, then you won’t be eligible to file Chapter 7 bankruptcy and may be forced to consider filing Chapter 13.  

The median varies according to where the debtor resides, thus, research needs to be done, or an attorney hired, that will make sure the appropriate amounts are used to make this determination.  

In trying to decide which would be the best avenue to follow, doing research and having the financial information ready to file goes a long way toward making the process less stressful whether filing for Bankruptcy 7 or 13.