|
Regarding:
DIFFERENCES BETWEEN A CHAPTER 7 LIQUIDATION AND A CHAPTER 13 WAGE
EARNER PLAN
These
terms refer to the Chapter 7 and the Chapter 13 of the Bankruptcy
Code.
Chapter 7 works well for individuals or businesses that
need to make a fresh start and cannot pay their debts from their
current income or assets. Depending on the exemptions allowed, the
debtor may be able to keep most of his or her property and the
un‑exempt property, if any, is sold by a court appointed
trustee. Thereafter, the money is used to pay off creditors. In
the event there is no un‑exempt property, then of course no
sale or distribution goes to the creditors. The debtor then
receives a discharge of his or her debt and after the bankruptcy
is completed, makes a fresh start.
An individual cannot file a Chapter 7 bankruptcy if 180
days prior to filing the Chapter 7 bankruptcy, a prior bankruptcy
was dismissed due to the debtor's failure to appear or comply with
orders of the court, or was voluntarily dismissed after creditors
sought permission from the bankruptcy court to recover property on
which they held liens. A discharge may be denied if the debtor
received a discharge in a previous Chapter 7 case within the past
six years. Therefore each debtor may only receive a Chapter 7
discharge once every six years. Chapter 7 bankruptcy is generally
advised for debtors that have more debts than assets and their
assets are exempt in nature. The goal is to discharge the debts
while retaining the exempt property or assets.
CHAPTER
13
Chapter 13 was designed for individuals with regular income
and a desire to retain most but not all of their property. These
debtors may have insufficient income to pay their current debts.
The primary benefit of the Chapter 13 relief is the ability to
repay creditors in installments over a three to five year period,
during which time the creditors are prohibited from continuing
collection efforts. Chapter 13 is also available for business
debt.
A Chapter 13 plan allows debtors, subject to confirmation
of the plan, to propose to pay a part of the debt, the amount of
the debt that equals the fair market value of the collateral in a
secured debt rather than the full amount of the debt.
Consequently, secured creditors may receive less money under a
Chapter 13 plan than they would have received if the debtor had
not filed bankruptcy and paid the full amount of money owed under
the contract or agreement which created the debt.
REQUIREMENTS
All individuals, even self‑employed ones or those
operating an unincorporated business, are eligible for a Chapter
13 as long as the individuals unsecured debts are less $ 250,000
and secured debts are less than $ 750,000. A corporation may not
be a Chapter 13 debtor. A corporation may instead file a Chapter
11 bankruptcy. Also, an individual cannot file a Chapter 13
bankruptcy if during the preceding 180 days, a prior bankruptcy
petition was dismissed due to the debtor's failure to appear or
comply with the bankruptcy court's orders, or a bankruptcy was
voluntarily dismissed after creditors sought permission from the
bankruptcy court to recover property in which they hold liens.
The debtor must file a Chapter 13 plan to re pay his or her
debts either with the petition or within 15 days after the
bankruptcy petition has been filed. The plan, which must be
approved or confirmed by the court, must provide for payment of
fixed amounts to the trustee on a regular basis. This is typically
done on a bi‑weekly or monthly basis. The trustee, after
receiving the income, then distributes the funds to the creditors
according to the terms of the Chapter 13 bankruptcy plan. The plan
may offer creditors less than the full amount owed on their
claims. If the creditors are offered only partial satisfaction,
the debtor is obligated to commit to the proposed plan all
projected disposable income over the three to five years that the
plan is in effect. Disposable income is income that is not
reasonably necessary for the maintenance or support of the debtor
or the dependents. If the debtor operates a business, disposable
income is defined as those amounts not necessary for the payment
of ordinary operating expenses.
Even though the plan may or may not have been approved by
the court, the debtor must start making payments under his or her
proposed Chapter 13 plan, to the court appointed trustee within 30
days after the filing of the plan.
Shortly after the bankruptcy petition is filed, the meeting
of creditor's will be held. The debtor must of course attend,
which is the same as the Chapter 7 proceeding. If a husband and
wife have filed a joint petition, they both must attend the
creditor's meeting. After the creditors meeting, the court will
schedule a confirmation hearing to determine whether or not the
Chapter 13 plan is feasible and meets the standards of the
bankruptcy code. Creditors may appear at the creditor's meeting,
or at the confirmation hearing and object to the confirmation.
Many types of objections may be made, including, but not
limited to, the payments offered under the plan are less than what
the creditors would receive if the debtors assets were liquidated,
or the debtors plan does not provide for all extra
non‑disposable income, as discussed above, for the three to
five year period. Creditors may object if interest is not provided
for. Once the plan is confirmed by the bankruptcy judge, the
trustee begins distributing the funds through the creditors,
pursuant to the plan. If the plan is not confirmed, the funds paid
to the trustee are returned to the debtor after deducting the
trustee's cost as authorized by the court.
A debtor may modify the Chapter 13 plan to add creditors or
offer circumstances that may arise after the plan has been
confirmed.
The debtor must make his or her regular payments in order
for the Chapter 13 plan to work, and in order to complete the
bankruptcy. This means the debtor must learn to live on a fixed
budget for a fixed period of time: three to five years. Once the
plan is confirmed, the debtor may retain his or her property as
long as the payments are made. The debtor should not incur any
significant credit obligations without consulting the bankruptcy
trustee, since this may have an impact on the execution of the
Chapter 13 plan. A debtor may consent to the deduction of the
planned payments from the debtor's paycheck. If the debtor fails
to make the Chapter 13 payments, then the trustee or creditor may
file a motion to dismiss the case or convert it to a Chapter 7
bankruptcy.
Upon completion of the Chapter 13 plan, the debtor receives
a discharge which extinguishes the debtor's obligations to pay any
unsecured debts or other monies that were owed prior to filing
bankruptcy, but were not paid through the Chapter 13 plan.
Creditors who were provided in full or part under the plan may no
longer initiate or continue any legal action against the debtor
concerning those obligations.
Pre‑petition debts may be included in the Chapter 13
plan. However, for secured property, current monthly payments must
be made in order to preserve the debtors right to keep the secured
property. A distinguishing difference between Chapter 13 and
Chapter 7 is that some debts that may not be dischargeable under
Chapter 7, may be dischargeable under a Chapter 13 plan, including
but not limited to some obligations incurred by fraud,
embezzlement, larceny, malicious injury, and educational loans. Of
course the debtor must meet the prerequisites to filing as
discussed above.
If the debtor cannot make all of the payments owed under
the plan, the hardship discharge remedy may be available. This
discharge is generally only available to those debtors whose
failure to complete the Chapter 13 payment plans are due to
circumstances beyond their control and through no fault of the
debtor, and after creditors have already received at least as much
money as they would have received in a Chapter 7 liquidation
proceeding, and when modification of the plan is not feasible or
possible. Injury or illness that precludes employment sufficient
to fund even a modified Chapter 13 plan may serve as a basis for
hardship discharge.
Chapters 7, 11, and 13 bankruptcies can be quite
complicated; the reader is advised to secure the services of a
licensed attorney when considering bankruptcy relief.
This letter contains general information about bankruptcy.
While the information presented is accurate as of the date of its
publication, this letter should not be cited or relied upon as a
substitute for legal advice or as legal authority.
|
You must meet the qualifications:
Or If you want to use your own email editor click here 