The Difference Between Chapter 7 and Chapter 13 Bankruptcy

Reorganization or Liquidation Bankruptcy?

Chapter 7 Bankruptcy – Liquidation Bankruptcy

Chapter 7 of the United States Bankruptcy Code is designed to allow for efficient and orderly liquidation of the assets of an individual consumer or a business that will no longer conduct operations after filing its bankruptcy case.  For consumers, the concept of liquidation might be somewhat misleading.  That is because, in many cases, there is nothing to liquidate.  A chapter 7 trustee will be appointed to review the debtor’s petition, schedules and related bankruptcy documents and that trustee will preside over a meeting at which the debtor will answer questions regarding those documents and other financial matters.  However, for most consumer debtors, bankruptcy exemptions empower them to keep most or all of their assets out of the reach of the chapter 7 trustee and their creditors.

Chapter 13 Bankruptcy – Reorganization Bankruptcy for Individual Debtors with a Regular Source of Income.

Chapter 13 of the United States Bankruptcy Code provides a vehicle for consumer debtors to repay their creditors some or all of what they owe them over a period of three to five years.  In a case under chapter 13, consumer bankruptcy debtors file many of the same documents that a chapter 7 debtor must file.  However, chapter 13 debtors have additional responsibilities including filing a chapter 13 plan which proposes which creditors will be repaid and the terms of that repayment.  Every jurisdiction provides a form for chapter 13 plans and nearly each is unique to that particular judicial district.  The Bankruptcy Code requires what a plan must do and mandates certain treatment for particular kinds of creditors.

Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?

The question of whether to file a chapter 7 bankruptcy case or a case under chapter 13 depends on several issues, unique to every case.  To begin with, some debtors may not have a choice–the bankruptcy means test may require them to file a case under chapter 13 to avoid the presumption of abuse.  Depending on certain debt thresholds, other individuals may actually be required to file a under chapter 11 of the Bankruptcy Code (a provision typically reserved for business reorganizations).

Debtors faced with a choice between chapter 7 and chapter 13 need to consider several factors.   One of the most common reasons for filing a case under chapter 13 is that the debtor is behind on a mortgage or car payment and wishes to repay its back payments over time.  For some debtors, chapter 13 represents a way to honestly repay as much of their debts as they can over time and come away from their bankruptcy case with a fresh start.  Before making any bankruptcy filing decision, make sure you discuss your options during a free initial consultation with a Pittsburgh Bankruptcy Lawyer.

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Pennsylvania Laws Limit Some Aggressive Creditor Actions

The Pittsburgh Post Gazette did a piece today on the protects that Pennsylvania consumers have against bill collectors.  The article does an excellent job of identifying what creditors can do and when they can do it.  For instance, creditors may only telephone you between the hours of 8:00 a.m. and 9:00 p.m.  Additionally, there are limits on how and when creditors can contact third parties like your employer or your friends and family.  If you find that a creditor is stepping outside the bounds of its rights, you should promptly contact a Pittsburgh debt attorney.

An important matter that the Post Gazette did not address is the power that Pennsylvania residents have to protect assets from their creditors.  Outside of bankruptcy, Pennsylvania’s exemptions are limited.  As the article mentioned, Pennsylvania does protect employee wages–most creditors cannot force your employer to pay them instead of you.  Inside of a bankruptcy case, Pennsylvanians can select between the Federal exemptions or Pennsylvania exemptions.  Pennsylvania is also unusual in permitting bankruptcy debtors the flexibility to select their own exemption scheme.  The Commonwealth permitted exemptions are spread over multiple statutes.  Some, like the tenancy by the entireties exemption, are not even codified but exist as judge-made, common law exemptions.  Tenancy by the entireties permits a married debtor to exempt his or her interest in property that he or she hold together with her non-debtor spouse.  This can be a particularly powerful exemption (think million dollar home and $100,000 in debt).  Application of exemptions is a craft and one that needs to be performed properly in order to get maximum value from a bankruptcy case.  It is false economy to save money on a bankruptcy lawyer but lose untold thousands because of improperly applied exemptions.  The simplest advice is this:  contact a Pittsburgh bankruptcy lawyer.

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Debt Settlement vs. Bankruptcy

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Debt settlement companies typically try to work by luring their customers into a plan to pay money to the company (or its escrow agent), not pay their credit card bills and wait a few years until there is some money to settle the unsecured debt.  The idea breaks down quickly for a number of reasons.  First, people soon realize the programs are a sham and stop throwing their money into them.  The debt settlement companies typically take their fee from the first dollars in and never return anything to their clients.  Even if the clients do stick around for awhile, they soon find that credit card companies don’t like not being paid.  They end up doing things like calling you at work and calling your friends and family.  They also sue you in court, get judgments against you, garnish your bank accounts and place liens upon your house.  This is not the story that debt settlement companies tell you on the way in the door.  More than that, your credit score can drop by more than 100 points even though you’re seeking to resolve your debts in good faith.  Good Morning America recently did a segment exposing how these scams work.  Several attorneys general have cracked down on these programs as well.  New York is an excellent example.

Bankruptcy is governed by the United States Bankruptcy Code.  Bankruptcy attorneys must disclose their fees, down to the last dollar.  There is no conjecture or hope of settlement.  Bankruptcy CAN result in the discharge of your unsecured debt under Chapter 7 and bankruptcy lawyer do not charge you a percentage of that discharge.  They just charge their attorney fee.  In Chapter 13, you can save your house, even if you’re behind on your mortgage.  No debt settlement company can promise that!

Finally, a bankruptcy lawyer is still a lawyer.  Bankruptcy lawyers do not sell bankruptcy cases.  They sell their services.  If a bankruptcy does not make sense but some other option does, an honest lawyer will tell you that.  If you’re still not sure.  Contact a bankruptcy lawyer for a free, no obligation consultation.  In Pittsburgh, you can call (412) 925-8194 for a no-obligation, confidential discussion.

How Much Does a Chapter 7 Bankruptcy Cost?

How much does a Chapter 7 Bankruptcy cost?  In many ways, shopping for a Chapter 7 bankruptcy lawyer is like shopping for a used car.  Rarely will a car dealer read off a list of a cars and prices together with the mileage and every other detail you might want to know over the telephone.  More often, they will list a few vehicles in an advertisement that seem attractive but, if you appear at the lot, that particular car just won’t be there.  “Sorry, we just sold it.  You can’t keep a car like that around.”

Chapter 7 bankruptcy lawyers sometimes do something similar.  They advertise a price:  “Chapter 7 Bankruptcy for $1,200!”  When you show up at the lawyer’s office you might find that the quote didn’t include anything other than preparing and filing your schedules.  Typically, it does not include the Court filing fee of $306 or the fees you must pay to the credit counseling agencies (typically, about $50 for two courses).  Also, the lawyer could charge you extra fees for representing you at your meeting of creditors–a mandatory hearing before an appointed Chapter 7 Trustee during at which you will be questioned regarding the information in the bankruptcy documents your attorney prepared for you.

A Chapter 7 case is a substantial piece of work for a bankruptcy lawyer involving a commitment of time and expenses.  Some Chapter 7 cases involve disputes with creditors and other parties in interest that require negotiation or litigation.  As a result, there is no cookie-cutter price for a Chapter 7–and there shouldn’t be.  If your case is simple, you should not have to the same flat-rate that a complex Chapter 7 debtor pays.  The complex case debtor would get a discount and you would pay a premium and that’s just not fair.

As a rule of thumb, Pittsburgh Chapter 7 attorneys generally charge between $2,000 to $3,000 for a Chapter 7 case.  An honest lawyer who calculates rates based upon the actual amount of work expected in the case can actually charge you less than the prevailing rate if you have a simple case with only a few creditors.

Here are some examples of a law firms that will take your call, talk about your case and tell you what you should expect to pay.  No pressure to sign; just get an idea of what you should expect to pay if you do file a Chapter 7 Bankruptcy.

Robleto Law, PLLC  – (412) 925-8194

Ben Roberts – (209) 522-7500

Law Office of Larry Leshlin – (505) 255-4859

Law Office of Paul Stuber – (304) 444-8366

Charles M. Sabo, PC – (480) 820-5931

Save My House, Save My Car

Can I save my house from foreclosure?  Can I keep my car in bankruptcy?  Probably.  Your Pittsburgh Bankruptcy Attorney will know how to apply your exemptions properly.

If you want to keep an asset on which you owe money, like a car loan or a mortgage, you generally need to keep paying the underlying debt.  Bankruptcy can make that easier by clearing off other debt that does not involve the property (think credit card debt and medical bills).  If you are not behind on your mortgage or car loan, it might make sense for you to file a bankruptcy under Chapter 7.  Under Chapter 7, you will be able to liquidate your debts without the requirement of making payments to unsecured creditors.

If you are behind on your payments and can’t catch up, even after you take out the unsecured debt, it could make sense for you to file a Chapter 13 bankruptcy.  You will have 3 to 5 years to pay the overdue payments on your mortgage.  In Chapter 13, you could end up paying your creditors a fraction of what you owe them while you catch up on the mortgage or car payment.  In either event, a bankruptcy filing imposes the automatic stay–stopping efforts by creditors to foreclose upon or repossess your property.

In any bankruptcy case, it’s important to properly apply your exemptions.  Exemptions are statutory and common law protections in place to permit you to shield property from the reach of your creditors in a bankruptcy case.  Exemptions vary by state.  In Pittsburgh, if you’ve lived in the Commonwealth of Pennsylvania for the majority of the 180-day period preceding the bankruptcy case, you can select between the Pennsylvania exemptions and the Federal Exemptions.  Your choice will have very important consequences.  Contact a Pittsburgh Bankruptcy Lawyer to determine how to apply your exemptions and save your house and save your car.

Call anytime for a free consultation:  412-925-8194.

Bankruptcy Questions, Bankruptcy Answers

Pittsburgh Bankruptcy Lawyers often hear the question, “should I file bankruptcy?”  Predictably, the answer is, it depends.  
Are your bills more than you can afford to pay?  
Are you behind on payments to credit cards, gas, electric or rent?  
Are you behind on your mortgage payments?  
Do collection agencies continuously telephone you?  
If the answer to these questions is yes, then a bankruptcy case might make sense for you.

The United States Bankruptcy Courts publish their official forms and instructions.  Does that mean you can file your own bankruptcy case?  Do people who represent themselves have fools for clients?  Please! An accountant could get lost in the complex world of bankruptcy.  Bankruptcy lawyers help their clients get millions of dollars worth of debt discharged.  It is false economy to try to save money on bankruptcy representation at the risk of not getting any discharge at all.  The process can be draconian; miss a deadline and you might find your case dismissed.  There is a 180-day window for the pre-bankruptcy counseling and a short 60-day window, in the middle of a Chapter 7 case, for the post-petition financial education course.

A bankruptcy attorney can tell you the important things before you file a bankruptcy case.  You should know what debt will be discharged, what payments you will continue to make, what payments to stop making in the months before you file your case.  Your lawyer will look at your particular situation and advise you what to expect your credit score to look like before, during and after your case.  If you’re even thinking of filing, talk to a Pittsburgh Bankruptcy Lawyer!