The two primary forms of bankruptcy for consumers in Louisville are either Chapter 7 or Chapter 13. While Chapter 7 primarily focuses on the liquidation of assets, Chapter 13 is a reorganized debt plan. The right option for you will depend on a number of circumstances, including your income, debt levels, and financial goals. Follow along to find out the different types of consumer bankruptcy and how a proficient Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you choose the right one.
What Are the Different Types of Consumer Bankruptcy to Choose From?
You do not necessarily get to choose between filing for Chapter 7 or Chapter 13 bankruptcy. Rather, you may qualify for one or the other.
For one, Chapter 7 bankruptcy, also known as liquidation bankruptcy, has you liquidate a portion of your assets in exchange for the discharge of most or all of your debts. Essentially, this works with your bankruptcy trustee, using the funds from your liquidated assets to pay back your outstanding creditors. Now, to qualify for this bankruptcy type, you must earn less than the average income in Kentucky. For an individual, this income limit is set at $57,509 per year.
So, if you earn above the average income, you may sooner qualify for Chapter 13 bankruptcy. This is why this bankruptcy type is otherwise referred to as the wage earner’s plan. Here, you may restructure your debt to pay it off at a reduced rate. That is, within a three- to five-year repayment plan, approved by the bankruptcy court in advance.
Chapter 7 and Chapter 13 bankruptcy are two of the most common options for consumers in Louisville and throughout the state of Kentucky. Each option has its pros and cons, so understanding the differences in the debt relief and protection they offer is critical.
Consumer bankruptcy cases in and around Louisville are generally filed through the United States Bankruptcy Court for the Western District of Kentucky.
The primary differences between these two options are:
- Whether debts are discharged quickly or repaid over time
- The income qualifications required to file each Chapter
- If assets are subject to liquidation
- The length of the bankruptcy process
- If secured debt arrears may be cured
- Eligibility to file in accordance with federal bankruptcy law
How Does Chapter 7 Bankruptcy Work?
Chapter 7 bankruptcy is most commonly referred to as liquidation bankruptcy. This is because in many Chapter 7 bankruptcy cases, assets may be liquidated by the bankruptcy trustee assigned to your case as a means of repaying creditors. As such, many unsecured debts are discharged relatively quickly.
To qualify for Chapter 7 bankruptcy, you must pass the means test. This evaluates the income when compared to the median income level in Kentucky. Income eligibility limits may change based on federal bankruptcy rules and household size, meaning it’s generally in your best interest to evaluate your eligibility in accordance with current bankruptcy data.
What Debts May Be Discharged in Chapter 7?
- Debts commonly discharged during Chapter 7 include:
- Credit card debts
- Utilities
- Some lawsuit judgments, with exceptions
- Certain collection balances
- Personal loans
- Medical bills
- Debts that are usually more difficult to discharge include:
- Recent tax obligations
- Alimony
- Child support obligations
- Most student debt loans
- Debts involving allegations of fraud
What Property May Be Protected During Chapter 7
- Commonly protected assets include:
- Certain vehicles
- Retirement accounts
- Household goods
- Clothing or personal belongings
- Equity in a primary residence
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy is most often referred to as the wage earner’s plan, as it allows those with a reliable income to reorganize debt through a court-approved repayment plan. This plan will last three to five years, depending on your unique circumstances.
In many instances, filers are able to keep their assets while making manageable monthly payments towards outstanding debt obligations.
Chapter 13 bankruptcy is most commonly utilized by homeowners who want to attempt to avoid foreclosure or individuals attempting to resume missed car payments.
What Are the Main Benefits of Chapter 13 Bankruptcy?
In Louisville, and throughout Kentucky, the primary benefits of Chapter 13 include:
- Halting foreclosure proceedings
- Preventing the repossession of vehicles
- Catching up on missed secured debt payments
- Consolidation of debts into one repayment plan
- Providing structured debt repayment
- Protecting non-exempt assets
Who Generally Qualifies for Chapter 13 Bankruptcy?
- Those with regular income
- Those with secured and unsecured debts under federal limits
- Those current on all necessary tax filings
It’s important to understand that certain repeat filing restrictions may apply in these cases. As mentioned, federal debt bankruptcy limits are subject to change, so it’s imperative to review these rules prior to filing.
When Is Chapter 13 Better Than Chapter 7?
- Chapter 13 may be ideal when:
- You have fallen behind on mortgage payments
- You need time to cure loan defaults
- You have a consistent income
- You want to avoid losing your assets through liquidation
- You have a number of nonexempt assets
- Chapter 7 may be better if:
- Income is limited
- Repayment is unrealistic
- A fast debt discharge is preferred
- Debts are primarily unsecured
Contact an Experienced Louisville Bankruptcy Attorney
We strongly encourage you to retain the services of a talented Louisville, Kentucky consumer bankruptcy lawyer. You may do so by scheduling an initial consultation with Schwartz Bankruptcy Law Center today. Contact us today to learn more about your legal options.
