An Overview of Chapter 7 and Chapter 13 Bankruptcy

Nobody enjoys having to file for bankruptcy; however, many people run into unfortunate circumstances in life and are forced to declare bankruptcy. When people are thinking about how to get back on their feet, it is important to make the correct first step and file for the proper type of bankruptcy.

The two types of bankruptcy that most people hear about are Chapter 7 and Chapter 13. Deciding which form of bankruptcy to file can have significant consequences for the future.

What is Chapter 7 Bankruptcy?

In Chapter 7 bankruptcy, the person filing will have the opportunity to have a release from some, if not all, forms of unsecured debt. Prior to this relief, the person filing for Chapter 7 bankruptcy will have to sell off almost all of their nonexempt assets to pay back as much of their debt as they possibly can. This means that while many people could lose a significant amount of their equity or assets, their property could be saved from the bankruptcy process. People can take advantage of Chapter 7 bankruptcy to slow down the process of any foreclosure; however, once people get back on their feet the foreclosure process may continue. Many people ask about how long this process takes.

Most filings for Chapter 7 bankruptcy will take anywhere from three to four months to run their course. People with a high annual income may not be eligible for Chapter 7 bankruptcy, while people who make below the national average are likely eligible for Chapter 7 bankruptcy. Of course, filing for Chapter 7 bankruptcy is a complicated legal venture. There is a significant amount of paperwork that individuals may want legal advice on to ensure accurate filing.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy has a few key differences from Chapter 7 bankruptcy. First, people filing for Chapter 13 bankruptcy will not receive a release from their debt in most cases. In fact, people filing this form of bankruptcy will typically be forced to come up with a repayment plan as part of their bankruptcy agreement. This payment plan will typically last a few years. At the end of this period, the remaining debts may be discharged.

Similar to Chapter 7, people filing Chapter 13 bankruptcy will typically be able to avoid liquidation of their property. To be eligible for this form of bankruptcy, people will need to have a steady income on a monthly basis in order to finance the repayment plan. This requires submission of a repayment plan to the court system.

The differences between Chapter 7 and Chapter 13 have important implications for the future. It is important that people file the proper kind of bankruptcy to make sure they set themselves up well for the future recovery process. Speaking with an experienced attorney will help you be able to make a more informed decision about filing for one form or the other.

CFPG proposes new debt collection rules to better protect consumers

A phone ring. It shouldn’t strike fear into anyone. But for some 70 million consumers whose debt is in collections, it is not just a ring. It is an attack on their well being and their sanity. The tactics used by collectors are often unconscionable, generating more complaints than any other financial service. Of course, you understand that they serve a function. You may owe the debt, but this does not give them the right to mistreat you.

The Consumer Financial Protection Bureau (CFPB) has released a proposal for new rules to better protect the consumer. Their goal is to curb the harassment and stop the attacks on consumers who, most often, are trying to do the right thing or may not even owe the debt in the first place.

While these are currently in the proposal stage, meaning that they have not yet gone into effect, these are new rules that you need to know about. Among them debt collectors must:

  • Do their due diligence:

They would have to take reasonable steps to assure that the person who they are contacting actually owes the debt by verifying both the contact information and the existence of the debt.

  • Stop harassing consumers:

They would be cut off at 6 communication attempts per week, and consumers could request that they not be contacted at certain numbers like a work phone.

  • Be more transparent:

They would be required to disclose details about the debt and if it is too old to collect.

  • Respond to disputes:

If a consumer requests verification that the debt is owed, then the collector would have to provide it or stop contacting them.

  • Stop moving debt to avoid handing disputes:

The proposed rules would close the loophole that allows collectors to transfer the debt to another agency to avoid responding to disputes. If transferred, the new agency would not be able to collect until the dispute was resolved.

It is important to remember that the approval process is lengthy and these rules may change, but this proposal demonstrates recognition that certain behaviors are not okay. By getting informed, you can be confident that you know your rights and can protect yourself against unlawful behavior.

Effects of a wage increase during a Chapter 13 Bankruptcy

Individuals and married couples in Minnesota who are having difficulty making ends meet due to overwhelming debt frequently choose to file for Chapter 13 bankruptcy relief. Chapter 13 is a versatile tool that can allow you to protect assets, while restructuring debt over the course of 36 to months. After a successful conclusion to the bankruptcy process, people enjoy a fresh financial start.

Sometimes, a person’s earnings will increase during the Chapter 13 bankruptcy process. The question arises, what becomes of the increase in income?

Bankruptcy law requires the debtor to contribute projected expendable income to the repayment plan for three to five years. Disposable income is that portion of the debtor’s income that remains after deducting all of the expected reasonable costs of living are deducted from total income. Changes in your total may affect the payment plan only if relevant circumstances are deemed appropriate for such a change. When an individual receives an increase in income during the process, the bankruptcy trustee will generally file a motion to modify the payment plan to conform to the new change in income.

It is important to work with an experienced bankruptcy lawyer from the beginning to protect interests. It’s possible, for example, that overall income will change after filing the petition. When changes occur, the trustee will consider any salary increase, as well as any other increase in expendable income which the payment structure will be based on. Should expenses grow commensurate with income, then disposable income may remain the same and any payment plan will also remain the same. If the disposable income is substantially increased, the trustee can ask for larger payments.

Anyone Filing a Chapter 13 bankruptcy, should speak to a lawyer

It can be demoralizing to get a well-deserved raise only have to give it over to the trustee. An attorney, experienced in bankruptcy law can help you to protect your financial interests throughout the bankruptcy process.