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What Are the Differences Between Chapter 7 and Chapter 13 Bankruptcy?

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We have all been in some form of financial difficulty at some time or another. Sometimes the financial difficulty is so severe that you cannot pull yourself out of it by skimping and saving. In these cases, filing for bankruptcy may be the best solution for you. Though filing for bankruptcy can be seen by some as a bad thing, it could be beneficial and help you to gain some control over your financial life. How do you know which chapter of bankruptcy to file? What are the differences between Chapter 7 and Chapter 13 bankruptcy? If you or a loved one are considering filing for bankruptcy, contact an experienced Maryland bankruptcy attorney to help you understand the pros and cons of bankruptcy and help you decide which one is better for you.

Differences Between Chapter 7 and Chapter 13 Bankruptcy

When you are considering filing for personal bankruptcy, there are two main ways to file under the United States Bankruptcy Code: Chapter 7 and Chapter 13, and determining which one to file depends hugely on your income, debts, assets, and financial goals.

Chapter 7 is considered a liquidation bankruptcy in which the goal is to discharge you of unsecured debts such as credit cards and medical bills. Under Chapter 7 bankruptcy, you must fall below a certain income level to be eligible and generally takes less time than a Chapter 13 bankruptcy filing. To be eligible for Chapter 7 bankruptcy, you must be considered low income and have little to no disposable income.

Chapter 13 bankruptcy is considered a reorganization bankruptcy as it is designed for individuals who have “regular” income who are able to pay back a portion of their debt through some form of repayment plan. For many who do not qualify for Chapter 7 bankruptcy due to exceeding the income threshold, Chapter 13 may be the best case scenario. Under Chapter 13 bankruptcy, you are allowed to keep all of your property, which includes non-exempt assets as well and is best when you have equity in a home and some other property and you would prefer to keep it.

For those instances in which you may be somewhere in the middle, speaking with an attorney is best so that you can be informed of the pros and cons of each and so you can be walked through the bankruptcy process.

Need Legal Advice?

Filing for bankruptcy is nothing to be ashamed of and can help you get closer to financial freedom. However, it is important to know the difference between Chapter 7 and Chapter 13 bankruptcy to ensure that you are filing for the correct one. Though you can file for bankruptcy without an attorney, it is not advisable as filing for bankruptcy can be a difficult process and can be even more difficult and overwhelming to navigate. Because of this, seeking legal advice and representation is in your best interest. If you or a loved one is considering filing for bankruptcy, contact an experienced Maryland bankruptcy attorney at Hassan, Hassan & Tuchman, PA to help you determine what is best for your situation. Contact our office today.

Chapter 13 Bankruptcy is an Option if Facing Foreclosure in Baltimore

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According to a July 2017 article in Market Watch, once foreclosed homes in Baltimore and around the country that were snatched up by investors are now in foreclosure again. A July study done by Market Watch discovered an increase in properties auctioned off by the government and an increase in the number of foreclosures. Institutional investors began buying delinquent property via government auctions in 2010.

The government auctions seemed like a win-win situation. Homeowners whose mortgage were bought at an extremely low rate could get a loan modification. Investors would obtain profitable assets and communities would continue to obtain tax revenues. Ultimately, neighborhoods would be revitalized. The homes auctioned off came from the Department of Housing and Urban Development. Fannie Mae was the first to auction foreclosed homes. Freddie Mac soon followed.

The auctions were intended to reduce the number of seriously delinquent government mortgages and help stabilize neighborhoods. For instance, a private equity firm has foreclosed one in about 2,000 homeowners as of July 2017. It has increased its foreclosure rate since 2013. The overall foreclosure rate in the U.S. fell 22% in the second quarter, an 11-year low.

A Baltimore homeowner interviewed for the article has lived in her home for 18 years and has had her mortgage change ownership several times. She obtained a loan modification a few years ago and was charged $1,000, but did not receive a decrease in monthly interest rate payments.

She tried again in 2017. She did receive a lower monthly bill, but received a one-time charge of $3,000. She continues to struggle to track her mortgage’s owner.

Bankruptcy is a Legal Option to Save Property from Foreclosure in Baltimore

Chapter 13 bankruptcy, also called wage earner’s bankruptcy, is only offered by the federal government to help a debtor obtain a financial fresh start. A debtor is anyone who files for bankruptcy. This bankruptcy chapter allows a debtor to pay creditors over a three to five-year period. It allows them to get caught up on their bills without facing the devastating consequences of going into debt, such as:

  • Foreclosure
  • Property auction
  • Legal judgments
  • Utility shut off
  • Wage garnishment

Chapter 13 Bankruptcy Comes with an Automatic Stay

The reason Chapter 13 bankruptcy is such a powerful tool is that it comes with an automatic stay. The automatic stay prevents a creditor from starting, continuing, or concluding any legal process of collecting its debts. If a mortgage lender files a foreclosure petition, it is automatically stopped. If a debtor’s paycheck is getting garnished for a judgment, that is immediately stopped, as well.

Get Help with Your Chapter 13 Bankruptcy from Hassan, Hassan & Tuchman, PA

Bankruptcy is a complicated process. It involves getting needed papers together like your tax returns. It also involves completing a Means Test. This is not a written test, but a way to determine if you are eligible for Chapter 13 instead of Chapter 7. Contact us to learn more about which form of bankruptcy is right for you.

Chapter 7 Bankruptcy for a Fresh Start in Baltimore

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According to the Baltimore Sun July 2017 article, after 37 years in business, Baltimore Clayworks shut down and filed for Chapter 7 bankruptcy. The filing followed a six-month saga involving an attempt to pay off its debts. Baltimore Clayworks’ board of directors decided to close the non-profit ceramic arts center helping to provide job training for adults with autism. Through Chapter 7 bankruptcy, the non-profit seeks to liquidate its assets to pay off its debts.

At the time that bankruptcy was filed, the non-profit faced more than $1 million in debt when it planned to relocate and sell the organization’s gallery and studio buildings in Mount Washington. The deal did not work out. In the summer, it planned to raise more than $50,000 to restore its cash flow, but it only generated 10% of the goal.

What is Chapter 7 Bankruptcy in Baltimore?

Chapter 7 is traditionally a personal bankruptcy for individuals trying to get out of debt. The bankruptcy option is a good one for those with unsecured credit like:

  • Credit cards
  • Payday loans
  • Store cards

Unsecured credit is any type of credit given to an individual based on a promise to pay. No collateral was needed to secure the loan or credit. Secured credit is backed by collateral like a home mortgage.

By completing a Chapter 7 bankruptcy filing, debts are eliminated. The debtor no longer owes his or her creditors.

An Automatic Stay is Part of the Baltimore Chapter 7 Relief

One thing that makes a Chapter 7 so powerful is that it comes with an automatic stay. The stay prevents the creditor from starting, continuing, or completing the legal process against you. This legal process could be garnishing wages or shutting off utilities. It will not provide relief to prevent the sale of property. Only Chapter 13 can do that.

Chapter 13 bankruptcy is called a wage earner’s bankruptcy because the debtor must pay back debts to creditors.

Preparation Prior to Filing Chapter 7 Bankruptcy

Bankruptcy rules changed in 2005. No longer were debtors allowed to choose their bankruptcy chapter. Prior to the change, it did not matter how much money the debtor had or if he or she wanted to repay or have debts eliminated.

Current bankruptcy laws involve a Means Test. This test determines whether a debtor can file Chapter 7 or Chapter 13. If, after completing the test, the debtor has money left over, it is called disposable income. He or she can then file for Chapter 13. If the debtor has no disposable income after all bills are paid, then he or she qualifies for Chapter 7.

Contact Hassan, Hassan & Tuchman, PA for Assistance with Your Chapter 7 Bankruptcy

Chapter 7 bankruptcy is worth the work of completing. It involves completing pre-bankruptcy counseling and credit counseling. After filing, you will have to attend a court hearing and complete a debtor’s education course. A skilled bankruptcy attorney can handle everything in between to help you get a fresh financial start. Contact us.