Liquidation or Reorganization? Which Is Right For Me?
A Look at Individual Debtors’ Options Under Bankruptcy Chapters 7 and 13
Both Chapters 7 and 13 of the bankruptcy code offer avenues of dealing with, and resolving, debt. These options, however, take very unique and distinct forms. Chapter 7 centers around a liquidation of debtor assets, while Chapter 13 is primarily concerned with formulating an affordable repayment plan. Due to the fact that the desired results under each chapter are so unique, there are very different factors to consider when deciding which avenue to pursue.
As stated above, the purpose of a Chapter 7 bankruptcy filing is the liquidation of a debtor’s assets in order to satisfy outstanding claims held by creditors. Under this Chapter, a trustee is appointed to gather the debtor’s assets and oversee their sale. The proceeds of the sale are then used to pay creditors in accordance with the rules and regulations set forth in the bankruptcy code. These rules and regulations do outline certain “exempt” property that may be retained by the debtor, but any asset that does not qualify for exemption is subject to liquidation. This may include any real property that is secured by a mortgage or other lien held by a creditor. Thus, it is important to bear in mind that under a Chapter 7 filing, the loss of property is a very real, and indeed intended, outcome.
Chapter 13 filings operate very differently from those brought under Chapter 7. A Chapter 13 bankruptcy is sometimes referred to as a “wage-earner’s plan.” The goal of this Chapter is to facilitate either full or partial repayment of debts in light of a debtor’s regular income. This Bankruptcy filing is structured as a repayment plan. This plan is proposed by the debtor, and consists of installment payments to be made over three to five years, subject to confirmation by the bankruptcy court judge.
A unique, and perhaps the most significant, aspect of a Chapter 13 filing for many debtors is the interaction of this Chapter with any ongoing foreclosure action. Chapter 13 offers the debtor an opportunity to save his or her home from foreclosure. First and foremost, a Chapter 13 filing imposes an automatic stay on foreclosure proceedings. As part of a Chapter 13 plan, a debtor may make mortgage payments and thereby work towards curing any delinquent payments. That being said, all mortgage payments that come due during the operation of the plan must also be made on time.
The two Chapters discussed above present very different approaches to alleviating debt. The decision to file bankruptcy is a difficult one, and there are many factors to take into account. Each individual case is unique, and so the type of bankruptcy you may choose to pursue as a debtor will depend on your specific situation, your assets, and what you hope to accomplish. Choosing competent representation is a great resource in deciding how to navigate these considerations, deal with debt, and put yourself in a position to move forward financially upon completion of bankruptcy. Call the experienced Tampa Bankruptcy attorneys at DeWitt Law Firm to discuss your Bankruptcy options.