Chapter 7 or 13: Which Bankruptcy Should I File?
In Oklahoma, consumers generally file bankruptcy under Chapter 7 or Chapter 13.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy allows a debtor to discharge all or a portion of his or her unsecured debts without ever repaying the creditors. Under Chapter 7, a debtor can return secured property to a creditor if the debtor can no longer afford it. If the property is returned, the debt is normally discharged. However, if the debtor can afford to keep the property, they can keep it by reaffirming the debt. After reaffirming the debt, payments will continue under the reaffirmation agreement.
After a Chapter 7 bankruptcy is filed, a court-appointed trustee will oversee the case, review the Bankruptcy petition, examine the debtor under oath, and generally close the case so that the Debtor can receive their discharge.
Chapter 13 Bankruptcy
While a Chapter 7 is ideal for most debtors, as it allows the debtor to walk away from dischargeable debt, it may not be feasible for all debtors. A debtor who faces foreclosure on their home or repossession of their car and wishes to retain the property, would likely not obtain that result in a Chapter 7 unless they could rapidly become current on the payments. Likewise, a debtor who has non-exempt property (a second home, mineral interests, etc.) would likely lose that property (unless it was fully secured) in a Chapter 7. Also, a debtor that has filed a Chapter 7 and received a discharge in the past 8 years is not eligible to receive another discharge through a Chapter 7. Finally, a debtor’s income level may prevent their qualifying for a Chapter 7. In any of these instances, a Chapter 13 Bankruptcy would likely be the better option.
A Chapter 13 is a type of reorganization, and is referred to as a “Wage Earners Plan”. Chapter 13 allows Debtors to protect assets and repay arrears on secured debts through a reorganization plan. The Plan is submitted to the judge and Chapter 13 Trustee for approval. If the Plan is approved, the trustee collects the funds from the debtor and distributes the funds to creditors. Chapter 13 Plans run from 3 to 5 years in length.
A Chapter 13 can only be filed by individuals with sufficient income to pay the creditors. The individuals cannot have secured debt over $ $1,184,200.00 or unsecured debt over $394,725.00. A Chapter 11 may be available for people having more debt than allowed for a Chapter 13.
If you are contemplating bankruptcy, contact us for your free consultation. We are here to help!
(We are a debt relief agency and we help people file for bankruptcy relief under the Bankruptcy Code.)