Chapter 7 is also known as "liquidation" bankruptcy, because the court analyzes whether the debtor(s), if he or she liquidated all of his or her assets, would be able to pay anything toward their debts. Often debtors do no have to pay anything, because there are exemptions which apply to most of the assets people ordinarily own. For example, retirement funds are usually fully exempt; i.e. you get to keep them. Cars that are paid off are often exempt. If your car still has a loan, just continue paying on the loan and you can keep it. Exemptions for household goods are very liberal when those goods are valued properly, and I can help you with that.
I am often asked "Can I keep my house in a Chapter 7 bankruptcy?" Yes, so long as you are current on the mortgage payments at the time of filing and can afford to keep making those payments. If you are not current on your mortgage payments, we may strategize how you can get it current prior to filing, or you might consider a Chapter 13 to cure the mortgage default.
Timing the filing of a Chapter 7 bankruptcy can be critical to maximizing your exemptions, and that is where my expertise comes in to work with you and advise you when the case should be filed. I don't immediately file cases unless absolutely necessary, so that we can work through some of thess issues to get you the best result possible.
Chapter 13 bankruptcy requires monthly payments for a period from 36 to 60 months. Higher income clients may be ineligible to file a Chapter 7 and must file a Chapter 13 and make payments into a Chapter 13 plan. If they earn an annual household income which exceeds the median household income for their county, then they have "failed the means test" and must file a Chapter 13.
However, that is not the end of the story. There are numerous deductions from your expenses which can be used to argue for Chapter 7 eligibility, particularly if you ar supporting children and/or elderly relatives.
Under certain circumstances, a Chapter 13 might be used to your advantage, such as :
1. You have valuable non-exempt assets which would be taken by the Trustee in a Chapter 7 case. As only a couple of examples, you might own a collector car free and clear, or some vacation land. If the sum of your Chapter 13 plan payments exceed the value of the assets that a Chapter 7 trustee could potentially seize, you get to keep the asset.
2. You can get caught up on delinquent mortgage payments. You must be able to resume making the regular payments on the loan, and put a bit aside into the Chapter 13 plan to pay off the delinquent payments.
3. You are a repeat filer; you received a Chapter 7 discharge less than 8 years ago and need relief from creditors again right away.
4. You have tax debts which can be put at the head of the line to be repaid before paying other creditors.
5. You have a second mortgage on your home, but the value of your home has slipped below the balance you owe on the first mortgage. You can "lien strip" and get rid of the second mortgage after your plan payments are successfully completed.