The Different "Chapters" of Bankruptcy
The Bankruptcy Code is federal law, created by Congress. There are four kinds of bankruptcy, and each kind is detailed in its own "chapter" in the bankruptcy code. If you want to read the entire bankruptcy code, you can find it here.
Chapter 7: Debtors can keep all property that is exempt. Property that is not exempt is sold by the Trustee, which is why this chapter is sometimes referred to as "liquidation". Pennsylvania uses the Federal bankruptcy exemptions. A qualified bankruptcy attorney can help you determine which assets you will be able to keep. Most debtors are able to keep all of their assets and discharge all of their debts in a Chapter 7.
Only an experienced attorney can assist you in determining whether or not you qualify for a Chapter 7 and even assist you in pre-bankruptcy planning, to help you qualify for a Chapter 7. Your income must be under a certain threshold to qualify for a Chapter 7, or you must meet other requirements.
This aspect of the bankruptcy law is new and it is important that you are represented by an attorney who knows how to apply the new law to your best advantage. Filing under the wrong chapter can be difficult to correct and sometimes is impossible to correct. Contact Us to speak with an experienced bankruptcy attorney who can help you determine if you qualify for a Chapter 7 bankruptcy.
Chapter 13: This kind of bankruptcy is "reorganization" for individuals and families. It permits Debtors to keep all property that is exempt (the same exemptions that apply in a Chapter 7), but it requires Debtors to make payments to the bankruptcy court. The three most common reasons why a Debtor would have to file a Chapter 13 instead of a Chapter 7 are:
1. A debtor's income is higher than the debtor's reasonable expenses and so the debtor must pay that extra income into the bankruptcy court for three years to five years. If a debtor's income is under the Median Income then the payment is for three years; if it over the Median Income the payment is for five years. A debtor's payment is determined by looking at the Means Test, as well as the a debtor's current income and expenses. Read more about the Means Test here.
2. A debtor has property that is worth more than the exemptions the debtor has, but the debtor wants to keep property. The debtor must pay the court the value of the property and has up to five years to make the payment in full
3. The debtor owes a non-dischargeable debt, such as taxes, or the debtor wishes to catch up on a past due balance for a secured debt, where the debtor wishes to keep the collateral.
For example, if you are behind in your house payments and owe $15,000 in past due payments, a Chapter 13 will give you the extra time you need to make those payments and stop the foreclosure. By filing a Chapter 13, you will have up to five years to pay that $15,000 back, provided you can keep up to date with your current payments as well. An attorney can help you determine what your monthly payments will be, to help you determine if you will qualify for a Chapter 13.
Chapter 11: This is a special kind of bankruptcy for family farmers.
Chapter 12: This is the same as a Chapter 13, only it is used primarily for businesses. There are extremely rare occasions when an individual cannot file a Chapter 13, but instead must file a Chapter 12.
Which bankruptcy chapter is right for you? That is the question only an experienced bankruptcy attorney can answer. We can help you. Let us help you decide how best to get a fresh start.
More Questions? Check out our frequently asked questions section and be sure to download our FREE Bankruptcy Information Sheet