What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?
A Chapter 7 bankruptcy (one in which you get a discharge) can only be filed once every 8 years. Therefore, only a Chapter 13 bankruptcy would be available for you after a discharge in a Chapter 7 bankruptcy until that time period has run. Also, even though you can file a Chapter 13 bankruptcy after a Chapter 7 bankruptcy (one in which you got a discharge), you would have to wait 4 years to file a Chapter 13 bankruptcy in which you are eligible for a discharge of your debts. You can usually discharge 90% of the same debt in a Chapter 13 bankruptcy that you can discharge in a Chapter 7 bankruptcy.
Should I file a Chapter 7 bankruptcy or Chapter 13 bankruptcy?
Many who call my bankruptcy law firm in Memphis are determined to file a Chapter 7 bankruptcy. They don’t even consider that filing a Chapter 13 bankruptcy may be the best option for them. However, the longer I practice law, the stronger I feel that filing a Chapter 13 is best in most situations, if a Chapter 13 bankruptcy is feasible. Thus, it is my opinion that a Chapter 7 bankruptcy should be filed only if a Chapter 13 bankruptcy is not a viable alternative. Keep the Chapter 7 bankruptcy reserved for something catastrophic.
Are you eligible to file for Chapter 7 bankruptcy?
One obstacle to filing a Chapter 7 bankruptcy is known as the “Means Test” which takes a look at your household income over a certain period of time. The “Means Test” comes from legislation passed by Congress making it necessary to file a Chapter 13 bankruptcy if you have the “means” to pay off some, or all, of your debt over a period of up to 60 months in a Chapter 13 bankruptcy. Thus, if you make too much money, you may not be able to file a Chapter 7 bankruptcy.
When should I file a Chapter 7 bankruptcy?
You should likely file a Chapter 7 bankruptcy if it is your only viable option.
Reasons why you may want to file a bankruptcy with Arthur Ray Law Offices:
As a bankruptcy attorney in Memphis, Tennessee, I have been filing bankruptcies for well over 35 years. Most of our clients file a Chapter 13 bankruptcy with no fee charged upfront. My location is convenient to the residents of all of the counties that need to file a bankruptcy in Memphis, Tennessee. Those counties are Fayette, Tipton, Lauderdale and Shelby County. You can park your car only a few steps from our front door, which is on the first floor. We use the latest technology to keep you informed about your case and court dates. You can text us anytime you may have a question and get a quick response. You can also email and call us. We strive for and feel confident that we do a great job for our clients.
Some things you should know before filing a Chapter 7 bankruptcy:
The Ch7 Trustee can take your tax refund or any other unliquidated claims that are owed to you that are not completely exempt (i.e. claim for a personal injury not yet settled, etc).
The Ch7 Trustee can send an appraiser out to value each item of personal property that you own and will possibly seize your household goods or other personal property to sell and pay towards your debts, unless exempt.
The Ch7 Trustee can pursue or take any income, receivables, or other entitlements due and coming to you AFTER filing this bankruptcy that are not exempt (this includes equitable or future interests in a future asset).
The Ch7 Trustee can take your retirement or pension, unless specifically qualified under sections 401(a), 403(a), 403(b), 408 and 408(a) of the Internal Revenue Code (T.C.A. 26-2-105) or otherwise exempt.
The Ch7 Trustee can take any money that people owe to you at the time you file that is not exempt.
The Ch7 Trustee may be able to get any assets that you do not presently have in your possession but may have a right to or may receive after the filing of your Chapter 7 petition that are not exempt (i.e personal injury, settlement claims, divorce settlements, etc).
The Ch7 Trustee is entitled to any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition and that the debtor acquires or becomes entitled to acquire within 180 days after such date–(A) by bequest, devise or inheritance; (B) as a result of a property settlement agreement with the Debtor’s spouse, or of an interlocutory or final decree of divorce; or (C) as a beneficiary of a life insurance policy or of a death benefit plan (Sec 541(a)), unless exempt.
The Ch7 Trustee may be able to take your vehicle if you recently purchased it and the lien was recorded within 90 days of the filing of your petition (unless recorded within the statutorily required time). The lien can be set aside, and the trustee can sell your vehicle to pay off debts owed to your creditors. The same may be true regarding your home and a mortgage or refinancing that has been recorded within 90 days of filing your petition.
Cash advances or payday loans totaling more than $750 taken within the last 70 days may not be dischargeable.
Credit card debt or other consumer debt incurred within the 90 days before filing may not be dischargeable.
Debts incurred within 90 days of filing for “luxury goods or services” (especially if for more than $500) may not be dischargeable, and you will still owe balances on that debt after filing your bankruptcy.
Reasons why you may choose to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy?
When your car has been repossessed and you want it back, when your car is in danger of being repossessed, or when you are just behind on your payments. Remember, you may be able to substantially lower your car payments in a Chapter 13 bankruptcy by spreading out the balance owed and lowering your interest rate. In some cases, you can lower your car payment enough so that your Chapter 13 bankruptcy total payment is less than the amount of your current car payment. Also, if you file a Chapter 7 bankruptcy, the company financing the car may not let you keep it.
When you have a title loan on your car. If you file a Chapter 7 bankruptcy, the title loan company may not let you keep the car.
When you are behind on your rent and want to stay in the place you are renting. If you file a Chapter 7 bankruptcy, you are likely going to be able to stay where you are renting.
When your house is in danger of being foreclosed on. Usually, after 3 missed mortgage payments, the mortgage company will stop taking payments and start foreclosure proceedings. It has been my experience that once foreclosure proceedings have been started the foreclosure proceedings are very rarely stopped. Don’t wait until the last minute to talk to an attorney.
When you don’t have medical insurance. You could discharge $50,000.00 in debt in a Chapter 7 bankruptcy and then get treated in a hospital soon after filing the Chapter 7 bankruptcy (one in which you get a discharge) without medical insurance and run up $100,000.00 in debt. You would not have another Chapter 7 bankruptcy available for another 8 years (from the filing date) to take care of your medical debt.
When you know you may incur more debt in the future. For example, you may need to buy a new car. If you buy a new car after filing a Chapter 7 bankruptcy (one in which you get a discharge) and then can’t make the payments (lose your job or get sick and can’t work), the car may get repossessed. If you owe $20,000.00 on the car and the finance company who repossessed the car only sells it for $10,000.00, you could end up owing the finance company the remaining $10,000.00 without a Chapter 7 bankruptcy available (for 8 years) to discharge the debt.
Of course, the above is only a simplification of the factors that go into choosing whether a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is the best option for you and/or your spouse. Do not act on anything you read on this site without hiring an attorney. This is why we offer, for free, to prepare a bankruptcy petition for you to see what works best in your personal financial situation. We provide representation for individuals who live in Lauderdale, Tipton, Fayette and Shelby County, Tennessee, who qualify to file bankruptcy in the Bankruptcy Court for the Western District of Tennessee located in Memphis, Tennessee.