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Comparison of Common Problems in Chapter 7 and Chapter 13

  • By: John Clark
  • Published: July 22, 2020
Comparison of Common Problems in Chapter 7 and Chapter 13

 

 

Problem or Issue:In a Chapter 7:In a Chapter 13:
You are behind on your mortgage.You must bring the loan “current” after filing the Chapter 7 bankruptcy petition (which commences the bankruptcy) or the mortgage lender may request that the bankruptcy court grant permission for the lender to foreclose on the home.You can repay the “arrears” through your Chapter 13 repayment “plan” over the 3-5 year life of the plan while continuing to make your regular monthly mortgage payments.
You are behind on your rent.If your landlord has not already obtained a prepetition (before filing) judgment for possession of the residential property (an “eviction” judgment), then the automatic stay will stop the eviction.If the landlord has not already obtained a prepetition judgment for possession of the residential property, then the automatic stay will stop the eviction and the arrears can be repaid as a part of your Chapter 13 plan.
You owe debts for past due or future domestic support obligations, including alimony or child support.These debts cannot be “discharged” in a Chapter 7 bankruptcy. In fact, filing the bankruptcy will enable domestic support creditors to proceed against “exempt” property (i.e., property which you would not otherwise give to the bankruptcy trustee) to collect the domestic support debt.These debts may not be discharged in a Chapter 13 bankruptcy, but the overdue arrears can be included as a part of the plan. Failure to pay post-petition domestic support obligations will prevent confirmation of the plan, entry of a discharge order and, potentially, result in the dismissal of the case. Unpaid domestic support creditors may be permitted to proceed against your exempt property to collect the unpaid debt.
You have non-exempt property (i.e., property which will become a part of the bankruptcy “estate”) which is valuable or in which you have equity (i.e., the property is worth more than you owe).You must give up all property to the bankruptcy “estate” which is controlled by the Chapter 7 trustee. The trustee will sell the property and use proceeds to pay unsecured creditors. Alternatively, you may pay the trustee for the fair market value of the property or reach an agreement with the trustee to swap exempt property for the non-exempt propertyYou keep all of your property.
You are behind on your car payment.You must bring the loan current after filing the petition or the lender may request that the bankruptcy court grant permission for the lender to repossess the car.You can repay the arrears through your plan over the 3-5 year life of the plan. You may also be able to restructure the car debt, depending on the value of the car, including reducing the secured debt due and the interest rate applicable.
You have a personal debt or loan which is guaranteed by, or signed for by, another person or family member.The creditor will likely pursue the co-debtor when you file bankruptcy.The creditor may not pursue the co-debtor for the duration of your bankruptcy.
You owe back taxes to the IRS.Depends upon factual circumstances.Depends upon factual circumstances.
You owe debts for: (a) student loans; (b) court-ordered restitution or criminal fines; (c) dues to homeowners’ or condominium association; (d) taxes less than 3 years past due; and (e) debtors for personal injuries arising from your DUIThese debts cannot be discharged in a Chapter 7.These debts cannot be discharged in a Chapter 13, but can be paid as a part of your plan.
Your current monthly income does not exceed the median family income for your state.You may file a Chapter 7.If you choose to file a Chapter 13 petition, you may propose a 36 month repayment plan.
Your current monthly income exceeds the median family income for your state.The “means test” must be applied. If further means testing shows that you may be able to fund a Chapter 13 plan, the bankruptcy court may dismiss your Chapter 7 unless you convert the case to Chapter 13.You must propose a 60 month repayment plan.
You have debts incurred by fraud, theft, breach of trust, embezzlement or for willful or malicious injury to another person or that person’s property.These debts are not dischargeable if the creditor objects to the discharge of the debt and provides evidence of your bad acts to the bankruptcy court.These debts are not dischargeable if the creditor objects to the discharge of the debt and provides evidence of your bad acts to the bankruptcy court. But these debts may be included in your Chapter 13 repayment plan.
You have debts from willful or malicious injury to another person or that person’s property and that person has not yet been awarded damages or restitution by a court.These debts are not dischargeable if the creditor objects to the discharge of the debt and provides evidence of your bad acts to the bankruptcy court.These debts may be included in your Chapter 13 repayment plan. If you do not pay the debts in full during the course of the plan, any unpaid balance is discharged at the successful conclusion of the plan.
You have debts incurred just before filing, including (a) debts of $500+ to a creditor for “luxury goods” or services purchased within 90 days before filing and (b) debts for cash advances of $750+ obtained within 70 days before filing.These debts are not dischargeable.These debts may be included in your Chapter 13 plan, but cannot be discharged if the creditor objects to the discharge and proves you took these actions within the specified time periods.
Your prior bankruptcy was dismissed within the past year.The “automatic stay,” which stops creditors from collecting debts from you or your property, expires after 30 days.The automatic stay expires after 30 days unless the prior bankruptcy case was a Chapter 7 dismissed for “abuse.”
You had 2 prior bankruptcies dismissed in the past year.The automatic stay does not take effect without separate bankruptcy court order.The automatic stay does not take effect without separate bankruptcy court order.
You received a previous discharge in an earlier bankruptcy.You cannot receive a new discharge if your prior Chapter 7 discharge was in a case filed less than 8 years ago or if your prior Chapter 13 discharge was in a case filed less than 6 years ago (unless you repaid at least 70% of your allowed unsecured claims in the prior Chapter 13 plan).You cannot receive a new Chapter 13 discharge if your prior Chapter 7 discharge was in a case filed less than 4 years ago or if your prior Chapter 13 discharge was in a case filed less than 2 years ago.

*this chart was created based upon a similar chart produced by California Society of CPAs

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