Brandon Bankruptcy Attorney
Debt Relief for Florida Individuals & Businesses
The legal team at the Law Office of Thomas P. Gill, Jr. has extensive
experience representing individuals and businesses in bankruptcy. Below
we have provided a discussion about Chapter 7 and Chapter 13 bankruptcy
to help you understand the differences between the two.
Chapter 7 Bankruptcy
Chapter 7 is known as liquidation bankruptcy, where the trustee liquidates
nonexempt assets in order to pay off your debt. By the end of Chapter
7, nearly all debt is discharged within several months of filing the chapter.
Most debtors attempt to file a Chapter 7 to avoid the monthly payments
to the trustee.
What to expect when filing Chapter 7:
Filing the petition: Upon the filing of the petition, an automatic stay goes into effect, which
makes it illegal for anyone to attempt to collect any money from the debtor.
Any pending suits, such as foreclosures, are stopped, and all collection
calls from creditors stop. In fact, anyone who violates the stay could
be held in contempt of the bankruptcy court.
Creditor meeting: Approximately 30 days after the debtor files the petition, the first meeting
of creditors is held by the bankruptcy trustee. The trustee is a lawyer
that the court appoints to do all the "legwork" for the court
in the case. At this meeting the trustee asks the debtor a series of questions
under oath about his or her finances and the petition. Creditors may ask
questions as well, if they choose to appear.
Discharge: Once the first meeting is over, the debtor typically waits for the court
to process the file. If all goes well, 90 days after the first meeting,
the court will enter the discharge order. The discharge is the key order
in the case, and it provides that the dischargeable debts are forgiven
and the debtor is not responsible to pay them. In most cases unsecured
debts (debts without collateral), such as credit card bills, medical bills,
and deficiencies on foreclosed homes or repossessed cars, are discharged.
This is the "fresh start" bankruptcy is designed to provide.
Typically, the bankruptcy case is closed shortly after the discharge is entered.
Secured debt: For each secured debt (where the debtor has pledged collateral, such as
a home mortgage or car loan), the debtor must decide to reaffirm the debt
or surrender the collateral. To reaffirm, the debtor enters into a contract
with the creditor which says that the debtor will pay the debt in exchange
for keeping the collateral. Alternatively, the debtor may elect to surrender
the collateral in exchange for having the debt discharged.
Exemptions Under Chapter 7: There is a common misconception that bankrupt debtors lose all their assets.
This is not true, because the Bankruptcy Code provides exemptions which
state that the debtor may keep certain types and amounts of assets.
For example, the debtor will keep the equity in his or home, all retirement
accounts, and $1,000.00 of miscellaneous personal property. The goal in
any bankruptcy is to exempt all assets, but in some cases assets over
the exemptions can be claimed by the court to be sold to pay some of the
In the hands of a competent bankruptcy attorney, Chapter 7 can be an effective
tool to give the debtor a fresh start while keeping his or home and other assets.
Chapter 13 Bankruptcy
In a case when a Chapter 7 filing is inappropriate, a debtor might be able
to file under Chapter 13. Chapter 13 is essentially a repayment plan that
allows the debtor to repay a portion of the debt over a period of time,
allowing an individual to restructure his or her debt to keep more assets
than could be retained in a Chapter 7. Chapter 13 is akin to a business
which files Chapter 11 to restructure its debt, then continues doing business.
What to expect when you file for Chapter 13:
Filing: To begin a Chapter 13 case, the debtor files a petition that is very similar
to a Chapter 7 petition. However, in addition to the petition, the debtor
must file a Chapter 13 plan. The plan is the debtor's proposal to
restructure his or her debt.
Creating a repayment plan: A typical Chapter 13 plan provides that the debtor will use his or her
income to pay his living expenses, then make payments to secured creditors
for debts the debtor has reaffirmed, such as a home mortgage. The plan
also can provide for catching up an arrearage on those debts, so that
mortgages and other secured debts can be brought current. The plan then
provides that any "extra" income left over will be paid to the
trustee, who will pay the unsecured creditors a portion of their debts.
Typically, a plan must be in effect for sixty months, and each month the
debtor makes a payment to the trustee.
Repaying debt then discharge: The Chapter 13 plan is submitted to the court for approval. If the court
approves the plan, and the debtor makes all the monthly payments called
for by the plan, the court enters a discharge for any unsecured debt that
remains unpaid at the conclusion of the sixty months. If the debtor successfully
completes the plan, he or she keeps all assets.
When Chapter 13 Is Preferred Over Chapter 7
Generally, there are three reasons to file a Chapter 13:
- First, the debtor may have significant assets that cannot be exempted in
a Chapter 7.
- Second, the debtor might have too much income to qualify for a Chapter
7 under the Bankruptcy Code.
- Third, if the debtor is "upside down" on his or her first mortgage,
the debtor can ask the court to dissolve the lien related to a second mortgage.
Is Bankruptcy Right for You?
We know that you probably have a lot of questions about whether you qualify
for a certain chapter and which chapter is right for you. You can explore
your options with the Brandon bankruptcy lawyer at the Law Office of Thomas
P. Gill Jr., P.L. to learn more.
Call (813) 305-0353.