Many Kentucky residents are currently grappling with overwhelming debt, whether due to unforeseen medical expenses or something else. If you list yourself among them, you may be exploring the idea of filing for bankruptcy. If you decide to do so, you may file for either Chapter 7 or Chapter 13, and there are some important distinctions that exist between the two consumer bankruptcy types. The main difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 eliminates debts quickly through the liquidation of assets, while Chapter 13 restructures debts into a long-term repayment plan.

What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy in Kentucky?

Chapter 7 and Chapter 13 bankruptcy are the two primary forms of consumer bankruptcy, and they differ in how debts are eliminated, how long the process takes, and whether or not you can retain your assets. As such, Chapter 7 focuses on the quick elimination of debts through the liquidation of non-exempt assets, while Chapter 13 allows you to keep your property by reorganizing your debts into one, long-term repayment plan.

Quick Comparison

  • Chapter 7:
    • A liquidation process that discharges debts quickly
    • May require the sale of non-exempt assets
    • Has income eligibility requirements (filers must pass a means test)
  • Chapter 13:
    • A reorganization process with a structured three-to-five-year repayment plan
    • Allows you to keep your assets while repaying the debt
    • Ideal for those with a steady income

What Is Chapter 7 Bankruptcy in Louisville?

If you do not have a steady income or if you see no real way to dig yourself out of debt within the next few years without filing for bankruptcy, a Chapter 7 filing may fit your needs. However, you have to take a means test before you may file for Chapter 7 to prove that you do not have enough income to pay back your debts otherwise.

It typically takes much less time to discharge debts and complete the bankruptcy process when you file for Chapter 7 instead of Chapter 13.

Key Elements of Chapter 7 Bankruptcy in Kentucky

  • Eliminates most unsecured debts, like credit cards, medical bills, and personal loans
  • Requires filers to pass the means test
  • Can result in the liquidation of non-exempt assets
  • Typically completed within three to six months
  • Offers filers a fast, financial fresh start

Who May Benefit From Chapter 7 the Most

  • Those with little to no disposable income
  • Those with an overwhelming amount of unsecured debts
  • Those who do not have significant assets at risk
  • Kentucky residents who pass the means test

What Is Chapter 13 Bankruptcy?

If you are unable to qualify for a Chapter 7 bankruptcy, or if you have a steady income and do not want to risk having to relinquish your home, car, or other assets, consider a Chapter 13 bankruptcy. These filings require you to reorganize your debts and come up with a payback plan that is manageable for you. For individuals filing in Louisville, Kentucky, and the surrounding communities, Chapter 13 is often used as a means of preventing foreclosure and managing long-term debt obligations.

It may take several years to discharge debts via this method.

Key Features of Chapter 13 Bankruptcy

  • Allows filers to keep their assets, including their home
  • Required a three-to-five-year repayment plan
  • Consolidates all debts into one monthly payment made to the trustee, who distributes funds to creditors accordingly
  • Halts foreclosure and other collection efforts through the automatic stay
  • Can reduce certain debts through the restructuring of expenses

Who Chapter 13 Is Best For in Kentucky

  • Those with a steady income
  • Homeowners looking to avoid foreclosure
  • Those who do not qualify for Chapter 7
  • Those who need time to catch up on missed payments

How Does the Chapter 7 Means Test Work in Kentucky?

The means test is used to determine if a filer qualifies for Chapter 7 bankruptcy based on their income. Essentially, this compares the income of the filer over the previous six months to the median income of households of the same size in Kentucky. Essentially, if your income is below the median, you may pursue Chapter 7 bankruptcy. If your income exceeds the median, you may still qualify through eligible deductions, or you may need to pursue an alternative option.

Which Bankruptcy Is Right for You in Kentucky?

While this information outlines some of the major changes that exist between Chapter 7 and Chapter 13 consumer bankruptcies, there are other differences, too, that might impact your next steps. As such, understanding the factors that can impact which option is in your best interest is critical, as this choice is not always simply a matter of preference.

Factors That Determine the Best Option

  • Your monthly income and household size
  • The value of your assets
  • If you are facing foreclosure or repossession
  • Your ability to repay debts over time
  • Your long-term financial goals

Contact an Experienced Louisville, Kentucky Bankruptcy Attorney Today

If you are in overwhelming debt and looking for a financial fresh start, bankruptcy may be in your best interest. However, it’s critical to understand that you should not navigate this complex legal process without guidance from an experienced Louisville bankruptcy attorney. At Schwartz Bankruptcy Law Center, our dedicated legal team understands how difficult these matters can be to navigate, which is why we will do everything in our power to help you through this process so you can focus on the next chapter of your life. Contact us today to learn how we can represent you.