How Long Do You Have to Wait to File Chapter 7 Bankruptcy Again
When y'all're deeply in debt, paying back what you owe might feel incommunicable. This can happen for many reasons, from big medical bills to a job loss to divorce. Fortunately, in that location's a solution under U.South. police force to help y'all escape from debt you lot can't pay back so yous aren't stuck for life.
You can file for bankruptcy.
In that location isn't just one type of defalcation, though. There are ii principal types of bankruptcy consumers can file for: Chapter 7 defalcation and Chapter 13 defalcation. In that location are as well other kinds of bankruptcy too, including Affiliate 11, which is oftentimes used by businesses that demand to restructure. But, for most consumers, Chapter 7 or 13 are the best or simply options.
Each type of bankruptcy is named for chapters in the bankruptcy code that fix the rules for filing. The bankruptcy code is a part of U.Due south. federal law, so the rules are largely the same no matter where you live — although private states ready some of their own guidelines as well, especially related to what happens to your assets during bankruptcy.
Because both options provide relief for consumers, it'due south important to brand an informed decision about which blazon is correct for you lot. There are big differences between Chapter 7 and Affiliate xiii, both in terms of who is eligible and how the bankruptcy process volition piece of work to help yous find relief from debt.
What is Chapter 7 defalcation?
Chapter seven defalcation is bachelor to people who have limited income. Yous'll have to laissez passer a means examination to show your income is low enough to file Chapter 7. Here's what it takes to pass the ways test:
- Your current income must exist below the median income in your land for your household size. Utilize Form 122A-1 to determine income for this test.
- Your dispensable income must leave y'all too little money to pay your debt after you pay for essential expenses, such as housing, required spousal relationship dues, kid support, and insurance. Employ Form 122A-ii to determine if yous can meet this test.
Liquidation defalcation
Those who qualify for Chapter vii have to turn over some avails to the bankruptcy estate equally function of the bankruptcy process. That'south why this type of bankruptcy is too known as a liquidation defalcation — the assets you turn over are liquidated to pay dorsum coin owed. This includes non-exempt assets and non-retirement investment accounts, expensive cars or jewelry, and real manor that's non your main dwelling.
Some assets are exempt, meaning you can continue them. Different states can set rules for which property is exempt and non-exempt within their state. Normally some equity in your primary domicile and an inexpensive car are exempt. Retirement accounts such as 401(yard) and IRAs are exempt as well, as is some personal property and tools or equipment you demand to earn a living.
What is Chapter 13 bankruptcy?
If you tin can't pass the Chapter vii means examination because your income is too high, you'll probable file for Chapter xiii bankruptcy.
In that location's a big upside to filing for Chapter 13 over Chapter seven. None of your property has to exist liquidated equally part of the bankruptcy process. This ways you can continue your belongings while notwithstanding getting relief from debt.
But there's besides a catch.
Wage earner bankruptcy
Yous accept to piece of work on paying back creditors over fourth dimension, which is why this type of defalcation is referred to equally wage earner defalcation. In fact, y'all have to piece of work with the court and your creditors to develop a three to five yr repayment plan (also known every bit a wage earner plan) in which you pay dorsum at least a portion of your debt. Chapter 13 doesn't provide fast relief for borrowers because you'll be required to stick to this payment plan for your defalcation to be completed.
If you lot tin't follow the terms of the plan, your bankruptcy might be dismissed, or you lot could request to catechumen the bankruptcy to a Chapter 7. You may also request a modification if your circumstances modify during repayment. But this would demand to be approved and in that location'd accept to exist a skillful reason to change what you agreed to.
Chapter 7 vs. Chapter 13
The two large differences between Chapter 7 and Affiliate 13 bankruptcy chronicle to eligibility and what happens to your debt after you file. Go along in mind, if yous make also much coin, you lot can't authorize for Affiliate vii bankruptcy.
What happens to your debt: When yous file Chapter 7, the remaining balance of eligible debt is discharged after assets accept been liquidated, and the proceeds are used to repay creditors.
With a Chapter 13, the remaining balance of debt isn't discharged until after you've completed your three to five year payment programme.
So, while y'all go to go on your property in Chapter 13, it takes much longer to get through the defalcation process. And your creditors will likely be paid dorsum more under a Chapter 13 than they would've been under a Chapter 7— although this depends on how many assets you lot had and their value when liquidated.
Is information technology better to file a Chapter vii or 13?
| Chapter 7 | Chapter 13 | |
| Type of bankruptcy | Liquidation Defalcation | Wage Earner'south Bankruptcy |
| Who can file | Those who can pass a means exam. Your income needs to be beneath the country median or yous need too little disposable income to pay dorsum debt | Wage earners who can afford to make monthly payments to creditors over three to 5 years |
| Biggest benefit | Quick discharge of eligible debt | You lot don't have to surrender your property to be liquidated |
| Biggest drawback | You may take non-exempt property sold to pay dorsum creditors | You lot have to complete a three to v year repayment program |
| How long it takes to receive a discharge | Around four months after filing bankruptcy | Around four years after filing bankruptcy, although it could be equally long every bit five years |
| What happens to property | Non-exempt property is sold | You lot tin go on most property |
| Are unsecured junior liens from real holding removed through lien stripping? | No | Sometimes |
| Are principal loan balances on secured loans reduced? | No | Sometimes |
How defalcation tin can help you
Bankruptcy provides important protection to those with as well much debt to repay. At that place are a few key ways bankruptcy can provide you with relief, including the following:
Bankruptcy stops collection efforts
This occurs considering an automated stay goes into outcome every bit soon as you lot file defalcation and prevents creditors from continuing to endeavor to collect against you. In that location are some limited exceptions, such as if you've very recently had a bankruptcy.
Having an automatic stay in identify means creditors have to stop collection calls and can't go along pursuing legal actions, including foreclosures or repossessions. Wage garnishment is paused. Creditors can ask the courtroom to let them continue collection efforts by filing a movement for relief from automatic stay, but the court won't always allow them. And the automated stay buys time to try to negotiate with creditors or become current on debt to terminate foreclosure.
Even earlier you accept filed bankruptcy, the Off-white Debt Collection Practices Act (FDCPA) protects your rights when you lot owe coin. Nether the human activity, collectors are limited in the actions they tin can take to endeavor to collect. For example, they tin can't call you likewise early or too late, telephone call you at work if you ask them not to, or make threats of legal action they don't intend to conduct out. They must also provide proof of your debt. And if you request they stop contacting yous, they must comply — although they can continue collection efforts and you'll still receive notification of legal actions such as lawsuits filed confronting y'all.
You can discharge debt
When debt is discharged, you no longer owe the amount that was due. Just some debt is eligible to exist discharged, including unsecured debt such as credit cards and medical bills. Unsecured debt is dissimilar from secured debt.
Unsecured debt is debt with no collateral, whereas secured debt has an asset guaranteeing the loan. Secured debt typically must be paid back in total unless you give up the asset serving equally collateral, but there are some exceptions. The time when eligible debt is discharged — and requirements you must fulfill — vary depending whether yous file Chapter 7 or Chapter 13.
Y'all tin piece of work on improving credit
Bankruptcy can do serious harm to your credit. But it can also be the first step toward fixing your credit also. When maxed out credit accounts and late payments are reported every month because you're overwhelmed with debt, this hurts your credit score.
Defalcation gives you a fresh kickoff. After your debt is discharged, you tin can open a secured card and start paying on time. Every bit you lot build a positive history of payments, your old bankruptcy and the older negative data on your credit report matters less.
The type of debt you have, and the blazon of bankruptcy you file, will touch the ways in which bankruptcy affects y'all.
Volition I demand to repay all of my debt with a Chapter 7 or Affiliate 13?
In virtually cases, you don't repay all of your debt when you lot file for either Affiliate seven or Chapter 13.
With Chapter vii, virtually creditors receive payment simply from your savings and the proceeds of the sale of your assets. The remaining balance doesn't have to be paid dorsum. With Chapter xiii, most creditors receive only the money you lot pay nether your repayment program, and the remaining remainder is discharged.
Only not all debt can be discharged in bankruptcy, which means it won't get abroad even if you have successfully gone through the bankruptcy process.
Debts y'all tin can't discharge include:
- Sure kinds of tax debt, including payroll taxes or contempo IRS tax debt for unpaid income taxes
- Student loan debt, unless you lot laissez passer the Brunner examination or meet similar criteria depending where you live.
- Unpaid child support or alimony, unless the pension was part of your property division during a divorce.
- Debt incurred due to fines, penalties, and restitution resulting from a criminal offense, except fines intended to repay the government rather than fines intended as a punishment.
- Debt incurred due to DUI drunk driving damages if you caused a drunk driving accident
Secured debt is also treated differently than unsecured debt. Secured debt is debt for which there's collateral. The two most common examples are mortgages and car loans. Your dwelling house is the collateral that secures your mortgage loan, and your car secures your auto loan.
If you file Chapter 7, you typically have to pay off these debts — or reaffirm them and keep making payments in order to go on the house, automobile, or other collateral. When yous reaffirm the debt, you hope to pay it back. Sometimes y'all may be able to become your creditors to hold to a different payment plan or dissimilar payment terms. Just these negotiations aren't a standard role of the bankruptcy process, and the court won't change the terms of your loan.
If y'all file Chapter 13, you normally take to pay off secured debt or reaffirm information technology and keep making payments, just like with Affiliate vii. However, cramdowns or lien stripping could also exist possible options.
Cramdown
A cramdown occurs when the balance of your secured debt is reduced to the fair market value of the property.
For example, if your auto is worth $2,000 just you lot owe $3,000, y'all may be eligible for a cramdown. The residual of your secured debt would exist reduced to $ii,000, and the remaining $i,000 would be considered unsecured. It would then be treated just like other unsecured debt, such as credit card debt, in your Chapter thirteen programme. Since you don't usually pay dorsum all of your unsecured debt in your payment program, a portion of your car loan remainder would exist discharged.
Cramdowns are an choice for investment properties but not a primary home. They're too an choice for cars yous've owned for at to the lowest degree 910 days prior to bankruptcy.
Lien stripping
Lien stripping is an option for primary homes — but only if yous have more than one loan. Your junior loans, which are mortgages or home disinterestedness loans other than your first mortgage, could exist reclassified as unsecured debt as a issue of lien stripping. This can happen if the home isn't worth more than than the value of the start mortgage.
If you owe $250,000 on a principal mortgage and the abode is worth $200,000, your second mortgage wouldn't be secured since foreclosure wouldn't give the second mortgage lender any money. The lien could be stripped from the second mortgage, then it'd be reclassified as unsecured debt and could exist included in your Chapter thirteen repayment plan with other unsecured debts.
How to make up one's mind which type of defalcation is right for you
To make up one's mind if Chapter 7 or Chapter 13 is right for yous, get-go consider if you can pass the Chapter 7 means test. If you can't, you'll have no option but to file Chapter 13.
If you could exist eligible for Affiliate seven but don't want to requite upward your property, you'll have to determine if you have the funds available to make payments nether a Chapter thirteen repayment plan.
If you lot're interested in lien stripping or a cramdown to help y'all keep property secured without paying off the loan in full, it may also be worth trying to file Chapter 13, equally long as you can afford the payments.
Earlier you lot file either type of bankruptcy, be sure to check if your debts are eligible for discharge and explore other options for how to pay off debt, such every bit debt settlement, which could exist less damaging to your credit. By considering the pros and cons of each option and determining what each could mean to your fiscal situation, you lot'll be in a good position to brand an informed decision on how to proceed.
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Source: https://financebuzz.com/difference-between-chapter-7-chapter-13-bankruptcy
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