January 26, 2024
Whether you’re in a challenging financial place from income changes or high debt that has just become too much to bear...Read More >
Considering filing for bankruptcy? You are most likely going to file a Chapter 7 or Chapter 13. But how do you know which bankruptcy option is best for you and your situation? The Debt Doctors are here to explain the major differences between Chapter 7 and Chapter 13 and help you decipher which case would be most appropriate.
There are several types of bankruptcy, but only two are common for individual debtors. Chapter 7, which is a liquidation process. And Chapter 13, which involves restructuring debt into a long-term plan
In a Chapter 7 bankruptcy, you essentially wipe out your debts and get a fresh start. Chapter 7 is a liquidation where the trustee collects all the debtor’s assets and sells any that are not exempt, (click here to see PA Exemptions.) The trustee sells the assets and pays the debtor any amount that is exempt. Then, the net proceeds of the liquidation are distributed amongst your creditors.
However, certain debts cannot be discharged in a Chapter 7 bankruptcy such as alimony, child support, fraudulent debts, certain taxes, etc. You can read more on PA’s Non-Dischargeable Debts here.
In many Chapter 7 cases, the debtor has a large amount of credit card debt, other unsecured bills, and very few assets. In the vast majority of these cases, Chapter 7 bankruptcy can eliminate these debts.
Under a Chapter 13 bankruptcy, the debtor proposes a 3-5 year repayment plan. This plan goes to the creditors that are offering to pay off all or part of the debts from the debtors future income. Chapter 13 can be used to:
As long as you stick to the terms of your repayment agreement, all your remaining dischargeable debt will be released at the end of the plan.
Several factors go into the amount that is to be repaid, like the debtor’s disposable income. This is usually determined as part of the Pennsylvania Means Test. In addition, the total amount paid to creditors in the Chapter 13 plan must also be as much as creditors would receive if the debtor filed a Chapter 7 bankruptcy instead.
To file a Chapter 13 bankruptcy, you must have “regular source of income” and some disposable income to apply towards your payment plan.
Chapter 13 bankruptcy is generally used by debtors who want to keep secured assets like a home or car. When they have more equity in those secured assets, they can protect them with PA’s bankruptcy exemptions.
Understanding the ins and outs of filing for bankruptcy can help you decide if it’s the right path for you. Chapter 13 bankruptcy is a reorganization and restructuring of debt. Whereas, Chapter 7 bankruptcy is a liquidation. If you are unsure which chapter is best for you and your situation, contact us for a free consultation. Making the right decision now can enable future financial success and eliminate sleepless nights.
Guest Post by Joseph David Wilcox
A few years ago, I began writing a novel about a flower farmer who falls for the attorney foreclosing on his third-generation family farm.
The idea for my book grew out of my curiosity about the lives of the guys who sell flowers on Pittsburgh street corners. I knew nothing about flowers, the floral industry, or foreclosure. So I began reading about these subjects and talking to experts.
On the topic of foreclosure, I was lucky enough to find Matthew Herron, managing attorney at The Debt Doctors. When we first talked on the phone, I told Matt I was writing a novel that involved bankruptcy and foreclosure and wondered if he might help me better understand the process and the law.
During our discussion, not only did I gain valuable insight into this world, Matt also helped me better understand Fergus.
Fergus McQueen is the main character in my story. Matt completely understood his plight: he worked hard at the business he owned, did not spend frivolously, tried to do the right thing, and to make the best decisions. Yet somehow despite all his resolve, he still found himself in foreclosure.
Matt talked passionately about Fergus as if he was a real person, referred to him as an unlikely hero that could help people better understand bankruptcy.
Our discussion not only helped me better understand the bankruptcy and foreclosure process, it also helped me see Fergus as more than words on a page. I began to see him as a living person.
I could tell that the idea that Fergus was in foreclosure but remained the hero of my novel excited Matt. It’s is the core of the message he wants to send, that people don’t have to be embarrassed about bankruptcy or seeking help with their finances.
“Just because you can’t pay your bills doesn’t mean you’re a bad person,” Matt said.
I know now that if Fergus knocked on Matt’s door, sauntered into his office in his clodhoppers and a handful of unpaid bills and asked for help, he would still be the hero of the story.
Joseph David Wilcox is a writer living in Bethel Park. He is writing his first novel, Alchemy of a Blue Rose. Learn more about Joseph.
Being Smart About Surrendering Property
Surrendering property such as real estate or a vehicle can have many benefits, but you must plan for it in order to gain the maximum benefit and reduce any negative effects.
When you are surrendering collateral (i.e. house or car) in a bankruptcy, the creditor does not automatically become the owner of the property. The creditor must complete the requisite state law requirements before becoming the owner, and until such time remain the legal owner. This can be a benefit and a burden.
When it comes to surrendering real estate, the process can take a very long time. In many instances, it will take the bank over a year to foreclose and sell the property. Although you remain responsible for the minimal upkeep of the property, there are benefits you can take advantage of during this time such as using the property, collecting rent and/or living in the property mortgage free.
Surrendering property can be a wise move in the right circumstances. If you own property and it’s starting to become a burden, call us. Our advice can help you save cash, have money to acquire new assets, and jump-start your efforts to rebuild your finances.