Chapter 7 vs. Chapter 13

Chapters 7 and 13 bankruptcies are the two most commonly used chapters for filing bankruptcy. Chapter 7 is generally referred to as a liquidation, Chapter 13 is usually called a reorganization. Your Bankruptcy attorney in Salt Lake City should be able to show you which Chapter is going to best fit your needs. Each Chapter carries its own benefits.

Chapter 7 allows the debtor to liquidate all of his or her debts. Once those debts are discharged, the debtor has a clean slate and little or nothing to pay back. Chapter 7 is intended for debtors who can satisfy the Means Test. Basically, the debtor must show that his/her necessary monthly expenses exceed or are equal to his/her monthly income. If you own a home with a lot of equity, Chapter 7 might not be the best option because any real or personal property equity that exceeds its Chapter 7 exemption allows the Trustee to sell that asset and distribute the proceeds above the exempt amount.

Chapter 13 is intended for debtors who are able to pay off a good portion of his or her debts. The court will confirm a payment plan which basically takes all of the debtor’s disposable income and turns it into a payment over the next 3 to 5 years. In a Chapter 13, there is almost no danger of the trustee taking personal or real property from the debtor. This means that the debtor can keep the house, even if he/she owns it outright. Chapter 13 is for those individuals who already own a lot of real and personal property and have a stable income, but are unable to catch up on their debt without court intervention.

Your bankruptcy attorney should be able to help you decide which Chapter is best for you. Some pre-bankruptcy planning may be necessary, but in most cases you should be able to satisfy the requirements of  the Chapter most beneficial to you.