Stillwater Lawyer BlogHow Chapter 7 Differs From Chapter 13 Bankruptcy

Chapter 13 bankruptcyFederal and state bankruptcy laws provide Stillwater, Oklahoma consumers financial relief by receiving a total discharge of their unsecured, non-priority debt under Chapter 7 or by allowing them to restructure their debt payments under Chapter 13 bankruptcy.

Bankruptcy in Stillwater

There are two basic categories of bankruptcy proceedings:

1) Liquidation (Chapter 7) – under which you may receive a complete discharge of your unsecured debt.

2) Reorganization or debt restructuring (Chapter 13) – under which you may restructure your debt to repay some of your creditors over a period of time.

Each category is subject to specific criteria for eligibility that takes into account your income, your assets, and the type and amount of debt you have.

Here is a survey of the basic rules, exemptions, and criteria for eligibility of each of these routes to debt relief under federal and Oklahoma state bankruptcy laws.

Chapter 7 Bankruptcy in Stillwater

Chapter 7 bankruptcy, also referred to as “straight bankruptcy,” is the most common type of bankruptcy filing. It is available to both individuals and businesses. The process typically lasts three to six months.

Chapter 7 bankruptcy belongs to the liquidation category, as it requires debtors to liquidate “non-exempt” assets in order to pay off secured debt and to receive a total discharge of their unsecured debt.

Qualifying for Chapter 7 Bankruptcy

To qualify for Chapter 7 in Stillwater, you will need to pass a court administered “means test” to determine if you have sufficient income to repay your debts.

If you are determined to have sufficient income to repay your debts, you will be ineligible for a discharge under Chapter 7. However, you may still be eligible for debt relief under Chapter 13 bankruptcy.

Limits on Discharge

Typically, credit card debts and other unsecured consumer debts will be completely discharged under Chapter 7 bankruptcy.

However, secured debts (those for which an asset has been assigned as collateral) will not be discharged under Chapter 7. Such debts will normally be satisfied by the liquidation or repossession of the underlying assets.

Furthermore, certain types of debts such as child support, alimony, legal fines, federal student loans, and taxes will not be discharged under Chapter 7 bankruptcy.

Bankruptcy Exemptions

Oklahoma bankruptcy law exempts certain assets such as clothing, furniture, cars, and your family home from being liquidated under Chapter 7 bankruptcy. However, the exemption is only valid for up to a certain dollar amount depending on your situation.

For secured debt such as automobiles and home loans, you are allowed to retain the underlying asset by reaffirming the debt or by having the asset sold, repossessed, or foreclosed upon to satisfy the debt.

While there is some risk of having to liquidate certain assets to offset secured debt, most debtors who qualify for Chapter 7 bankruptcy receive a complete discharge of their unsecured debt and lose very little in the process.

Chapter 13 Bankruptcy in Stillwater

Chapter 13 bankruptcy belongs to the category of bankruptcy proceedings referred to as reorganization or debt restructuring. It allows individuals or businesses to reorganize their debt in order to pay off their creditors over a specified period of time.

Qualifying for Chapter 13 Bankruptcy

You may qualify for Chapter 13 bankruptcy if the amount of debt you owe does not exceed federally mandated limits and if you have sufficient income to repay this debt over time.

Restructuring Your Debt Under Chapter 13 Bankruptcy

Under Chapter 13 bankruptcy, you are required to submit a plan to pay off certain creditors over three to five years. You will do so under court supervision. Once you have completed your repayment schedule, you will receive a complete discharge of any remaining unsecured debt.

The size of your installment payments will depend on a variety of factors, including how much you can afford to pay, the type of debt you possess, how much you owe, and how much unsecured debt would have been satisfied if you were required to file Chapter 7 bankruptcy.

To avoid the repossession of items such as your automobile or the loss of your home through foreclosure, you are allowed to make arrangements with your creditors to make up any missed payments by adding them to your proposed repayment plan.

Chapter 7 vs. Chapter 13

By far the most significant difference between Chapter 7 and Chapter 13 bankruptcies is the length of time it takes before you receive a discharge.

Under Chapter 7 bankruptcy, it takes three to six months to receive a discharge.

However, under Chapter 13 it will take three to five years before you receive a discharge of any remaining unsecured debt. Furthermore, during this time, all of your financial decisions will need to be approved by a bankruptcy court trustee.

Another difference is that Chapter 7 bankruptcy will provide you a total discharge of your unsecured debt while exempting most, if not all, of your personal belongings — including your home and automobile — from being liquidated.

However, depending on your income level, it may be more difficult for you to qualify for Chapter 7 bankruptcy than for Chapter 13 bankruptcy.

Free Consultation: Stillwater Bankruptcy Attorney

For more information on the differences between Chapter 7 and Chapter 13 bankruptcies, call an experienced bankruptcy attorney. You can be speaking with a Stillwater bankruptcy lawyer within minutes.

Wirth Law Office – Stillwater offers free, no-obligation phone consultations. Call 405-673-1600 today.

If you prefer, submit the “Ask an Attorney” form at the top right of this page.

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