What Are the Differences Between Chapter 7, 13 and 11?
Purpose of Chapter 7
Chapter 7 is used if the client's objective is to eliminate his or her credit card and unsecured debt. We also file Chapter 7 bankruptcy to eliminate liabilities and income taxes for properties in foreclosure. Each case presents a special challenge to us. Our objective is to help our clients obtain a fresh start in life.
Income limits: Not everyone is eligible for Chapter 7 bankruptcy. The client's household must have income below a fixed level based upon the number of people in the home. For example, a family of four in New York would be automatically eligible for Chapter 7 bankruptcy if the household income was less than $88,747. We count the income of all wage earners, even if only one is filing for bankruptcy. In some cases, we can qualify a client for Chapter 7 even if his or her income is higher than the statutory ceilings.
Assets: We generally would not file a Chapter 7 bankruptcy even though the client was below the income ceiling, if the client had a risk of losing certain assets to a bankruptcy trustee. We will use our skills to attempt to exempt assets and protect them from creditors.
Residence: We can protect up to $150,000 per person in home equity (above the mortgage and home equity loan).
Auto: We can protect up to $4,000 of equity (above the loan) for one vehicle per person. If the client does not have much equity in a home, we can sometimes protect about $19,000 of equity in a car.
Retirement: We can protect retirement funds.
Other assets: Under New York exemption laws we cannot protect equity in timeshares, vacation homes, business properties or businesses owned. Under federal exemption laws we can protect approximately $13,000 in value of these or other nonexempt assets.
Retaining assets with equity: Sometimes we will file bankruptcy for clients even if they have unprotected equity in an asset, if the client makes an advance decision to pay money to the bankruptcy trustee equal to the net equity that is not protected. This may be a strategically good idea when the amount necessary to pay the trustee is substantially less than the debts that will be discharged by the bankruptcy.
Purpose of Chapter 13
We file Chapter 13 bankruptcy to help people catch up on mortgage arrears. We can also use Chapter 13 for people who make too much money to qualify for Chapter 7, or if they have unprotected equity that they would lose in a Chapter 7 case.
How Chapter 13 works: Chapter 13 is a debt consolidation plan. The client pays one monthly payment to the bankruptcy trustee who distributes that money to creditors. We can provide you with a five-year, 0 percent interest plan to pay your mortgage arrears, back taxes and credit card bills. Sometimes, we can even file payment plans paying less than 100 percent of the debt.
Eligibility: Chapter 13 is only available to individuals, not business entities. To be eligible for Chapter 13, you must have a monthly income, including contributions for others sufficient to pay your current living expenses (including mortgage and home equity payments), plus an installment payment to the bankruptcy trustee. Chapter 13 is available to individuals who have less than $336,900 in unsecured debt and less than $1,010,650 in mortgages and car loans.
You are protected: Have you noticed those TV and radio ads for "debt settlement" and "debt consolidation"? Have you realized that these are usually run by non-lawyers and are located out of state? You have no protection against these companies taking high, hidden fees, keeping your money or going out of business. These plans hurt your credit, do not stop creditors from suing you and may end up costing you large amounts of money over many years.
Chapter 13 bankruptcy, in contrast, is controlled by the federal courts and a bonded bankruptcy trustee. The trustee's 10 percent commission is much less than the cumulative interest you would otherwise be paying. The legal fees for a qualified bankruptcy lawyer will probably be less than the fees paid to the debt settlement company for their work. Why deal with unregulated, out-of-state entities when you can get the help you need from a local, highly qualified lawyer, trustee and a judge?
Purpose of Chapter 11
Chapter 11 is the classic business reorganization. This can be used to restructure debt, stop foreclosures and other lawsuits, and obtain "breathing time." Unfortunately, it is geared to large entities, is very paper-intensive and tends to be highly expensive. For the right client, however, it can save a business. Each case must be separately evaluated.
Eligibility: Chapter 11 is available to business entities, as well as individuals who have debt higher than the Chapter 13 ceilings.
Contact Our Staten Island Debt Relief Attorneys
If you are overwhelmed by debt, we can help determine the debt relief option that is right for you. Contact us online or call 718-442-4424 to schedule an appointment to discuss your situation.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.