COHEN LAW OFFICESBANKRUPTCY
What Different Types of Bankruptcy Cases Should I Consider?
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Chapter 7 is known as “straight” BK or “liquidation”. It requires a debtor to give up property which exceeds certain limits called “exemptions”, so the property can be sold to pay creditors.
- Chapter 11 is known as “reorganization” and is used by businesses and a few individual debtors whose debts are very large.
- Chapter 12 is reserved for family farmers.
- Chapter 13 is called “debt adjustment”. It requires a debtor to file a plan to pay debts (or parts of debts) from current income.
Most people filing BK will want to file under either a Chapter 7 or a Chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
Chapter 7 (“Straight” Bankruptcy)
In a Chapter 7 BK case, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 BK is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to your creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 BK does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. If you are behind on your mortgage or car loans, if you file a Chapter 7, you will have to come up with the amount that you are behind in a certain amount of time after filing the Chapter 7.
An individual cannot file a Chapter 7 if their income is too high. Gross family or household income for the last 6 months is used. If your income is below the PA Median Income, you will be able to file. If you are above the Median, there is a complicated formula that will determine whether you can file.
Median income in Pennsylvania as of March 17, 2009 is as follows:
Household Size |
Annual Income |
Monthly Income |
1 |
$43,166 |
$3,597 |
2 |
$50,628 |
$4,219 |
3 |
$63,491 |
$5,291 |
4 |
$76,182 |
$6,349 |
5 |
$83,082 |
$6,924 |
Each additional person |
$6,900 |
$575 |
Chapter 13 (reorganization)
In a Chapter 13, you file a “plan” showing how you will pay off some of your past-due and current debts over 3 to 5 years. Most importantly, a Chapter 13 will allow you to keep valuable property, especially your home and car, which might otherwise be lost, if you can make the payments on your plan. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage and car loans, plus an extra payment to pay the past due amounts for your mortgage and car loans, plus whatever percentage of “unsecured” debts you may have to pay back depending on your monthly income and expenses.
You should consider filing a Chapter 13 if you:
- Own your home and are in danger of losing it because of money problems;
- Are behind on secured debt payments, but can catch up if given some time;
- Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
You will need to have enough income in your Chapter 13 to pay all your expenses and bills each month.
Call Lisa today to schedule your bankruptcy appointment with Cohen Law Offices or email Lisa at Cohen Law Offices. Or, if you prefer, click the red appointment widget to the right -> to schedule an appointment yourself.
Member, National Assoc of Consumer Bankruptcy Attorneys
Member, Middle District Bankruptcy Bar Association