What are the differences between chapter 7, 13 and 11?

In a Chapter 7 bankruptcy case, a trustee is appointed to liquidate your assets, subject to certain rules that allow you to exempt some or all of your property. At the conclusion of the case, you receive a Discharge that eliminates your dischargeable debts. With some other exceptions, Chapter 7 typically does not discharge taxes, alimony and child support, or student loans.

In a Chapter 13 bankruptcy case, you retain possession of your property, but agree to pay some or all your creditors through a bankruptcy repayment plan usually lasting 3 to 5 years. Chapter 13 is frequently used to stop a foreclosure, and allow for a cure of the missed mortgage payments through your repayment plan; however, it is sometimes used for debtors who cannot quality for chapter 7.

Chapter 11 is primarily a mechanism for business reorganization, but is available to individual debtors in certain situations. In a Chapter 11 case, the debtor is provided some breathing room, during which it remains in possession of its property and continues to operate its business in an effort to formulate a plan to pay some or all of the debts, and creditors are allowed to vote on the proposed plan. Chapter 11 is substantially more complicated and time consuming than cases under Chapters 7 and 13.

Do I qualify for Chapter 7?

There are certain impediments to filing a Chapter 7 case. One is that you cannot have received a Chapter 7 discharge in a case filed within 8 years. Another impediment to eligibility for Chapter 7 is the “means test.” The means test is a formula set forth in the Bankruptcy Code that is designed to determine whether a consumer debtor has the financial means to repay a portion of his or her debts. If your household earns less than the state average for your household size, then you are deemed eligible for Chapter 7. Even if you earn more than the state average for your household size, you may still qualify for Chapter 7 depending on the amount of your disposable income which also takes into account various actual and recognized expenses.

How long will my Chapter 13 plan last?

Chapter 13 repayment plans last between 3 and 5 years. Sometimes plans can be less than 3 years, but never more than 5.

What is a Discharge?

The most common purpose for an individual to file bankruptcy is to obtain a discharge of debts, meaning that the individual is relieved of the legal obligation of having to pay them back. Generally, the discharge applies only to debts which arose before your bankruptcy case was filed, and only covers those debts that you listed. Among others, child support, alimony, and most student loans are not dischargable.

Secured debts, like car loans and mortgages, are also discharged, but if you fail to pay them, the secured creditor can repossess or foreclose its collateral as the discharge does not by itself alter creditors’ lien rights.

What can go wrong?

Creditors can object to you discharging their debt. Creditors and the United States Trustee can also object to your discharge of all debts. In order to object, the creditor or United States Trustee must have legal grounds to do so, such as fraud, dishonest paperwork, or unlisted assets.

What property can you keep?

Each State has its own list of what you can exempt (i.e. protect/keep).

In Virginia, some of the exemptions available include:

• 75% of your earned wages
• Household furnishing up to $5,000 per debtor
• Motor Vehicles up to $6,000 of equity per debtor
• Retirement accounts (subject to some limits)
• Clothing up to $1,000 in value per debtor
• Wedding ring with no limit to value
• $5,000 per debtor ($10,000 if over the age of 65) to protect anything else or to supplement the foregoing exemptions.

Can I keep my house?

In Chapter 7 you can keep your house if there is no equity (or the equity is exempt) and if you are able to satisfy the mortgage lien, such as by making regular payments or modifying the mortgage terms. In Chapter 13 you can keep your house if you make the regular payments plus catch up on the missed payments, if any, through your plan.

Can I keep my car?

As long as the equity is exempted, you can keep it as long as you make the payments. Some creditors require a Reaffirmation Agreement which has the effect of excluding the car loan from the bankruptcy.

What is a Reaffirmation Agreement?

Some vehicle lenders require a Reaffirmation Agreement before you can retain the vehicle. Essentially, a reaffirmation agreement takes the vehicle loan out of bankruptcy.  Loans can only be reaffirmed if your income exceeds your expenses, or you can otherwise prove to the Bankruptcy Judge that you can afford the loan.

What is a Motion for Relief from Stay?

The initial filing of a bankruptcy creates an automatic and temporary stay which prevents creditors from collecting on their debts, including repossessing cars, foreclosing homes, or continuing any other collection activities. After filing, if you are delinquent on your house or car payment, your lender may file a Motion for Relief from the automatic stay, requesting permission to repossess your car or foreclose on your home.

Homeowners’ Association Dues?

Homeowners’ Association dues get special treatment in bankruptcy. HOA dues that become due before filing bankruptcy can be discharged, but HOA dues that become due after bankruptcy are not discharged. If your house is foreclosed after bankruptcy, you are liable for the HOA after the bankruptcy filing until you are no longer the owner of the property.

How long will a Chapter 7 filing remain on my credit report?

10 years from the filing date.

How long will a chapter 13 filing remain on my credit report?

7 years from the filing date.