CHAPTER 7 BANKRUPTCY
Chapter 7 bankruptcy is commonly referred to as “straight bankruptcy” or a liquidation of assets. When an individual files under Chapter 7 of the Bankruptcy Code the deal is that they must forego any “non-exempt” assets to a Chapter 7 Trustee in exchange for a discharge of the majority of their debts. State law and Federal law provide for basic exemptions of different types of property that allow you to remain in possession of the property up until the specific exemption dollar amount. For example, in Ohio, there is a vehicle exemption of $4,000.00. If you own a vehicle free and clear of liens that is worth more than $4,000.00 you could potentially lose the non-exempt portion of funds to a Trustee. Property owned by the vast majority of individuals who file under Chapter 7 is normally exempt and most of the time no property will be lost to a Chapter 7 Trustee. To be eligible for Chapter 7, typically your average gross income from all sources for the 6-months prior to filing must be less than the median amount for your state based on the size of your household. This is called the “Means Test”. If you are eligible, a typical Chapter 7 case lasts 4-6 months before discharge can be received.
CHAPTER 13 BANKRUPTCY
A Chapter 13 bankruptcy case is usually referred to as a “reorganization of debts”. Chapter 13 is a payment plan for people who have a regular source of income where you propose to pay a monthly amount to a Chapter 13 Trustee consisting of all types of your debts. Typically, the percentage paid on all of your unsecured debts, i.e., credit card debt, medical debt, unsecured loans, etc. is very small. Usually pennies on the dollar. Chapter 13 can hold certain benefits that Chapter 7 does not offer. There are more classes of debts that can be discharged in Chapter 13 than Chapter 7, commonly referred to as the “super discharge”. Most importantly, Chapter 13 allows you to keep all of your property, and if you are a business owner, remain in control of said business. Chapter 13 is the go-to option for filers who want to protect co-debtors, remain in control of their property, pay a percentage back on their debts, and who otherwise do not qualify for Chapter 7.