Wednesday, October 28, 2015

What's the difference between a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy?

In a Chapter 7 Bankruptcy you receive a full discharge of your debts usually within three months of filing.  There is no payment plan and your credit will start rebuilding immediately.   Usually there is only one creditor meeting to make sure your paperwork is filed correctly and is accurate.

In Chapter 13 Bankruptcy you repay all or part of your debt based on a budget prepared by your bankruptcy attorney.  There is a trustee whose duty is to make sure the creditors get paid as much as possible under bankruptcy law.  After a creditor meeting, there is a hearing to confirm your plan, and typically the trustee must agree to the plan.   For example, if I owed $100,000.00 in debt and my budget showed I could pay $1,000.00 per month, I would repay approximately $60,000.00 over five years, or 60 percent of the debt.  No interest would accrue on unsecured debt.  You can also pay arrearages on a home and a car in Chapter 13.  You do not get a discharge until the plan is complete.  You cannot enter into debt while in Chapter 13 without Court permission.

I generally recommend filing a Chapter 7 due to the lower costs and quicker discharge of debts.  Chapter 13 is appropriate if you are behind on your home and want time to make up payments.  I never believe it is a good idea to file Chapter 13 to keep a car, as with the attorney fees and trustee fees you could buy a good used car.  Most Chapter 13 plans fail, and the only benefit is to the attorney who gets paid first.

Often people file Chapter 13 because they cannot afford to pay an attorney up front, and respond to ads for low up front payments.  This is a bad idea because in the end you will be paying way more money than if you found a way to file a Chapter 7.  FAQ provide by Bankruptcy Court

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Please call if you need legal representation to Thomas F. Tierney at (770) 631-1100 or e-mail at   Thomas F. Tierney is an attorney who represents clients in south metro Atlanta, including Fayette County, Coweta County, Peachtree City, Tyrone, Fayetteville, and Newnan Georgia.

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