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Choosing between a Chapter 7 and a Chapter 13 bankruptcy

People in Rockland County who are considering filing a bankruptcy petition usually wonder whether they should use Chapter 7 or Chapter 13. A Chapter 7 bankruptcy usually results in the discharge of many of a person's debts, whereas a Chapter 13 bankruptcy results in a plan to pay existing obligations over time, usually five years. While Chapter 7 may seem more appealing, only individuals whose income is below a prescribed level are eligible for Chapter 7. People whose income is above the prescribed level must file under Chapter 13. Nevertheless, approximately 70 percent of all bankruptcies are filed under Chapter 7, while the other 30 percent are filed under Chapter 13.

Most people worry about keeping their house and their automobile. Under Chapter 7, assets subject to a lien, such as a real estate mortgage or security interest, will be returned to the creditor unless the debtor is able to pay off the balance of the loan. Under Chapter 13, the debtor can keep the asset by staying current with the repayment plan prescribed by the court. Many debtors have valuable assets that are not exempt from collection, such as works of art, non-homestead real estate and corporate stock. These assets must be surrendered in a Chapter 7 proceeding, but the debtor can retain ownership under a court approved plan in a Chapter 13 bankruptcy.

Some debts are ineligible for discharge under both Chapter 7 and Chapter 13. Debts owed for child support, alimony and student loans cannot be discharged in either Chapter 7 or Chapter 13. Amounts owed to government entities for past due taxes, fines and restitution cannot be discharged in bankruptcy.

The differences between Chapter 7 and Chapter 13 can vary significantly depending upon the debtor's personal financial situation. Anyone with questions about whether to choose Chapter 7 or Chapter 13 may wish to consult an experienced bankruptcy attorney for advice on which chapter may better suit a person's individual circumstances.

Source: FindLaw, "Chapter 7 vs. Chapter 13 Bankruptcy," accessed on March 12, 2018

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