The Bankruptcy Code describes several different types of bankruptcy, some of which may be more appropriate for an individual or business, dependent on their own personal circumstances. To be sure, the nuances of bankruptcy law can be complex to the uninitiated; however, a recent circuit court of appeals case goes over a few of the differences between two of the more common types of bankruptcy – Chapter 7 and Chapter 13.
In the recent case, In re Davis, the 4th Circuit Court of Appeals goes over a few of the key differences between Chapter 7 and Chapter 13 bankruptcy. For example, the court notes the following about each type of bankruptcy:
Chapter 7 Bankruptcy:
- The focus of Chapter 7 Bankruptcy is “liquidation,” meaning that the person claiming bankruptcy liquidates, or sells any assets that are not exempt. As a practical matter, however, most debtors never actually lose any property when they file Chapter 7 Bankruptcy because of the availability of federal and state exemptions which generally protect certain essential property such as household goods, automobiles and retirement savings, among other things. An exemption is also available to protect a certain amount of equity in one’s personal residence (up to $22,975 per person in Kentucky and $17,600 per person in Indiana).
- Proceeds from the liquidated assets are then used to pay off debt holders.
- Amounts of debt in excess of what can be covered by the liquidated assets are discharged.
- However, some classes of debt are non-dischargeable; these debts remain intact. These include, among others, student loans, child support and some taxes.
- Discharged debts cannot be collected, or even attempted to be collected once the bankruptcy is complete.
Chapter 13 Bankruptcy:
- Chapter 13 Bankruptcy is focused on “reorganization” rather than liquidation.
- Under Chapter 13 Bankruptcy, the person filing for bankruptcy arranges to pay off at least some of his debts through a plan of reorganization.
- This may result in creditors receiving recovery amounts from future income (this is unavailable in a Chapter 7 Bankruptcy proceeding).
- Some debt can be discharged under a Chapter 13 Bankruptcy that are not eligible for discharge in Chapter 7, including some types of taxes and some types of divorce obligations (but not child support or alimony).
- In sum, Chapter 13 Bankruptcy creates an ongoing, comprehensive plan involving the filer and the creditors.
What Type of Bankruptcy is Right for You?
If you are considering filing for bankruptcy, it is important that you consider all your options and what it is that you want to get from filing bankruptcy. The type of debt you have, your income, your future earning potential, whether you own a business and other factors will determine what type of bankruptcy is right for you. It is an individual decision that should be made with the consultation of an experienced bankruptcy attorney.
Are You Considering Filing for Bankruptcy?
If you are considering filing for bankruptcy, you should speak to an experienced and dedicated Kentucky or Indiana bankruptcy attorney as soon as possible. Before filing any paperwork, or making any commitments that you may not be able to go back on, speak to an attorney to gain a better understanding of what lies ahead. At The Schwartz Bankruptcy Law Center, we have a team of dedicated bankruptcy lawyers well versed in all bankruptcy issues. To schedule a free initial consultation click here, or call 866-366-3328 today.
More Blog Posts:
Cadle Co. v. Moore – Impact of Bankruptcy on Civil Lawsuit, Kentucky Bankruptcy Lawyers Blog, published February 19, 2014.
Federal Court in Western District of Kentucky Refuses to Change Lower Court’s Order that Debt was Dischargeable, Kentucky Bankruptcy Lawyers Blog, published March 25, 2014.