When given the option, numerous debtors choose to file Chapter 7 bankruptcy since it releases most financial obligation. However, a debtor must qualify by fulfilling an earnings limitation. A certified debtor may have financial burden discharged in exchange for quitting important nonexempt property for the trustee to offer to pay creditors. Even though the debtor will lose some residential or commercial property, there are numerous advantages of filing Chapter 7 bankruptcy over Chapter 13 bankruptcy.
The Advantages of Chapter 7 Bankruptcy
The debtor receives a “new beginning.” The objective of Chapter 7 bankruptcy is to provide the debtor a brand-new start. The elimination of specific financial obligation releases the debtor from personal liability for the discharged financial burden. However, some kinds of fiscal responsibility are not dischargeable, consisting of trainee loans (unless the court rules otherwise), child assistance and spousal support, individual taxes, and debts sustained by fraud. Specific liens on home, such as a home mortgage, a tax lien, or a mechanic’s lien, remain after the conclusion of Chapter 7 bankruptcy.
The debtor keeps future earnings. In general, the home a debtor obtains or will get after filing for Chapter 7 is not consisted of in the bankruptcy estate. However, particular property a debtor acquires within 180 days after filing for Chapter 7 will enter into the bankruptcy estate. This rule uses to purchase residential or commercial property, home from a divorce decree or settlement agreement, survivor benefit, or the proceeds from a life insurance coverage policy.
No constraints on the quantity of debt. Unlike Chapter 13 bankruptcy, Chapter 7 bankruptcy guidelines do not impose a limit on the amount of debt a filer might have. Under Chapter 13, a debtor is ineligible if protected or unsecured financial obligation surpasses financial obligation limitations.
No repayment strategy. Under Chapter 7, the debtor does not need to repay a debt in a court-approved payment plan, unlike a Chapter 13 bankruptcy. The debtor is no longer accountable for paying back the financial obligation after its discharge in Chapter 7.
The discharge of financial obligations happens rapidly. In a conventional case, the release of financial obligation might occur in as little as three months. About 60 to 90 days after the debtor files for bankruptcy, the court will provide a discharge order. After the trustee disperses a debtor’s residential or commercial property to unsecured financial institutions, the bankruptcy court will close the case.
The Disadvantages of Chapter 13 Bankruptcy
Just people are qualified. To petition for bankruptcy under Chapter 13, the debtor should file as an individual. If an individual is the sole owner of a company or has a partner, Chapter 13 allows the debtor to register as a species if the debtor has incurred personal liability for those financial obligations.
The debtor needs to pay back financial institutions. A Chapter 13 bankruptcy requires the debtor to pay back lenders utilizing a three or 5-year repayment plan. Subsequently, the debtor should have sufficient income to pay creditors every month. The debtor needs to pay back top priority debts and secured creditors completely and should pay back unsecured lenders in quantity equivalent to what those lenders would have gotten if the trustee had sold the debtor’s nonexempt home in a Chapter 7 bankruptcy.
The debtor should meet debt restriction requirements. A debtor is disqualified for Chapter 13 if unsecured financial obligation goes beyond $336,900 or secured debt exceeds $1,010,650.