Bankruptcy can be a daunting subject to understand, but many of those who research the available options will discover that the two options available are Chapter 7 and Chapter 13. These two options are handled very differently and it is important that those who are Considering filing for bankruptcy know the differences when choosing how to proceed. Both are nuanced and complex, but there are some important differences in the way these options are pursued and completed that can help a person know which one might work best for their needs.
Bankruptcy is known as an option for those facing overwhelming or insurmountable debt. If the debtor opts for Chapter 7 bankruptcy, a trustee can sell all of the person’s non-exempt assets so that the proceeds go toward the debt.
However, Ohio and Kentucky allow many property exemptions. Most Chapter 7 scenarios are actually considered “no asset” cases, meaning the debtor will not be forced to part with any property and creditors will receive no proceeds. It can be difficult to know which assets are exempt during this process, but a bankruptcy attorney can be very beneficial in analyzing your situation and helping you understand what property would be considered exempt when filing under Chapter 7.
Some of the common exemptions during this process include:
• Homestead – real or personal property
• Personal property: burial plot, motor vehicle, bank accounts, tax refunds, household items, furniture, musical instruments
• Salaries: minimum of 75% of weekly earnings available
• Pensions – tax-exempt retirement accounts, public employee pension
• Trade tools: tools, books, implements
• Alimony – alimony and child support
• Insurance – disability, life, group life
• Miscellaneous – owned by commercial company
• Wild Card – $1,150 of any property
This type of filing is beneficial because it denies the debts a person owes. While some property may be lost, many times a person can be released from most of their debt. Additionally, this method is often a more efficient and faster way to complete a bankruptcy motion. However, it still has long-term consequences, so this option should be considered carefully.
Chapter 13 bankruptcy is often a more complicated process. This option is usually more suitable for those who want to protect their assets while paying down their debts in a more lenient environment. The courts will protect a debtor who signs up under this plan to pay the mortgage debt or other payments over a longer period of time. This situation can provide protection to co-signers or other third parties on items such as automobiles.
Another important difference between the two options is that certain types of debt cannot be discharged under Chapter 7 but are eligible under Chapter 13. One of the main debts involved is any debt related to property settlements during a divorce. These debts cannot be discharged under Chapter 7, so it is important to consider this if debt through divorce is part of the cause of the bankruptcy filing.