The different types of bankruptcy explained by consumers

In Chapter 13, families have three or five years, depending on their income, to make income-related catch-up payments.

Even before the coronavirus emerged, many families were living on the edge of the razor. Now, and especially after the COVID-19 financial assistance programs have expired, the situation is even worse in many households. Around 90 percent of Americans report significant financial stress. As their financial prospects deteriorate and debt collection agencies become more aggressive, an increasing number of these families will consider bankruptcy in 2021.

Most of these people look for answers from a professional. If you can’t set out your options clearly and concisely, you will go elsewhere.

So it is important to explain the difference between a Chapter 13 and a Chapter 7, and not just for marketing purposes. In general, Athens bankruptcy attorneys operate with little or no oversight. However, this area is an exception. Legally speaking, lawyers need to explain the difference between a Chapter 13 and a Chapter 7. Referring customers to a blog post on the topic is a time-saving idea. An even better idea is to break down these options in person.

Chapter 7

The type of debt largely determines the type of bankruptcy that is best for a particular family. The coronavirus pandemic has been very difficult for many families, especially if they weren’t particularly stable at first. That means more divorces and separations, especially when January (a / k / a month of divorce) is only a few inches closer. The increased costs, not to mention legal fees, usually translate into increased credit card usage.

A short page here. Divorces usually decrease from late October and early November. Couples feuds often explain vacation truths. The good vibes usually last until after Christmas. Then when Valentine’s Day marketing is in full swing, people think about how bad their marriages are and they want out.

Credit cards and other unsecured debts can usually be settled in Chapter 7. These individuals must qualify for the means test. Your income must be less than the average for that geographic area. You can find a breakdown by state here.

About six weeks after their filing, the debtors meet with an insolvency practitioner. The trustee verifies the identity of the debtor and reviews some financial documents, e.g. B. Tax Returns. Assuming there are no red flags, the judge usually settles the unsecured debt about six or twelve weeks later.

Speaking of tax returns, unpaid income tax, student loans, legal fees, and a few other obligations, priority unsecured debts are. These debts are only paid in certain situations.

Chapter 13

Colorful paper clips with business papers, calculator and pen; Image by Alexander Stein, via, CC0.

Likewise, significant numbers of people fell behind in mortgage payments, car loan payments, and other secured debt during the COVID. Now that the lockdowns seem to be over, at least for the most part, many of these families are getting up again. So you can afford to get rid of this crime. You just need time.

In Chapter 13, families have three or five years, depending on their income, to make income-related catch-up payments. Automatic residence, which prohibits most forms of prejudicial creditor activity, remains in effect.

The role of the trustee also differs in Chapter 13. At session 341, the trustee essentially provides the debtor with an allowance based largely on the income / expense balance in Schedules I and J. After the debtor pays the monthly bills, the trustee collects all of the debtor’s disposable income and distributes it among the secured creditors. As long as the payment is high enough to clear any arrears before the protected repayment period expires, the judge almost always approves the plan with a brief confirmation hearing.

At the end of Chapter 13 bankruptcy, the judge will typically settle any remaining unsecured debt except for the senior unsecured debt noted above.

“Chapter 20”

This form of bankruptcy is not included in any of the Horn books. It’s also not allowed in all jurisdictions. However, in some cases it is a very useful tool.

Suppose Julio has a large student loan that he can’t pay. Being behind on payments, he files Chapter 7 and requests discharge from the loan. The judge rejects the application as Julio cannot prove undue hardship. The circumstances that constitute “unreasonable hardship” vary in different jurisdictions.

Julio could file chapter 13 after the judge closed the 7. That would give him up to five years to catch up on the student loan and repay it without bank hassle. Julio has no right to discharge at the end of the 13th chapter. But he probably doesn’t need one since Chapter 7 has already paid off his other unsecured debts.

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