The Bankruptcy Code under §342(b) requires that a notice be given to individual consumer debtors. Parts of the notice are reprinted below in black. Only the parts pertaining to Chapter 7 and Chapter 13 are provided.
1. Chapter 7: Is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a "means test" designed to determine whether the case should be permitted to proceed under a chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, the United States trustee (or bankruptcy administrator), the trustee, or creditors have the right to file a motion requesting that the court dismiss your case under § 707(b) of the Code.
2. Under chapter 7, you may claim certain of your property as exempt under governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors.
3. The purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. If however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny your discharge and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.
4. Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay nondischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.
1. Chapter 13: Is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. You are eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in Bankruptcy Code.
2. Under chapter 13, you must file with the court a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be three years or five years, depending on your income and other factors. The court must approve your plan before it can take effect.
3. After completing the payments under your plan, your debts are generally discharged except for domestic support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which are not properly listed in your bankruptcy papers; certain debts for acts that caused death or personal injury; and certain long term secured obligations.
WHICH CHAPTER IS BEST
Which chapter is best to file under depends on what the person wants to accomplish and the circumstances. A Chapter 7 is faster and cheaper. But, a Chapter 13 may be better suited to the person's needs or circumstances. Three of the most common considerations in determining which chapter is appropriate or best are stated below.
First, there is a means test. The means test is now embodied in a form with math calculations to determine if a individual has the means or ability to fund a meaningful Chapter 13 Plan. If the household income is above the applicable median amount then a presumption of abuse will arise if a Chapter 7 Bankruptcy Petition is filed. The median amount depends on the number of people in the household and where the person lives. However, even if the household income is above the median amount, there are deductions which may be available to reduce the disposable income and possibly prevent the presumption of abuse from arising. If the presumption of abuse still arises after taking all of the allowed deductions then a Chapter 13 is very likely to be the appropriate chapter, provided the debt caps arenot exceeded.
Second, if the person wants to cure a default, such as missed mortgage payments, then a Chapter 13 should be considered because it allows a individual to cure a default over time. A Chapter 7 does not provide a legal right to cure a default by making payments over time.
Third, the value of the property, both real and personal, may be greater than the client can exempt. Filing a Chapter 7 might mean that some property must be turned over to the Trustee for liquidation. However, the client might be able to buy the property back from the Trustee. A Chapter 7 Trustee, at least in the Tampa Division, is likely to allow the individual a short time to buy the non-exempt assets. A Chapter 13 would allow a much longer time to pay the non-exempt portion.
Other reasons may exist that make a Chapter 13 the wiser chapter to file under.However, in the absence of good reason to file under Chapter 13, then a Chapter 7 should be considered. A Chapter 7 is usaully much faster and cheaper than a Chapter 13.
There are other chapters that may apply, such as a Chapter 11. This website is primarily focused on Chapter 7 and Chapter 13. However it should be noted that Chapter 13 has caps on the amount of debt an individual can have and still be a debtor under Chapter 13. At the time of this writing the debt limits are $360,475.00 noncontingent, liquidated, unsecured debts and $1,081,400.00 noncontingent, liquidated, secured debts. A debtor exceeding either debt limit should consider a Chapter 11 or Chapter 7.
More information about Bankruptcy Chapters 7 and 13 can be found on the Home Page of this website. If you have questions regarding the information on this site you may call the Tampa Office at (813) 221-8287
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