If you are an individual in Orange County NY considering bankruptcy, one of the first things you learn is that there are two paths through bankruptcy. The first process, called a Chapter 7 bankruptcy, is filed under Chapter 7 of the U.S. Bankruptcy Code. Unsurprisingly, the option to file Chapter 13 bankruptcy is found under that chapter of the Code.
If you are wondering how these two paths through bankruptcy are different, then this post is your comprehensive guide to the definitions, requirements, and timeframes for Chapter 7 and Chapter 13 bankruptcy.
Two Types of Bankruptcy
Chapter 7 and Chapter 13 bankruptcy want to eliminate debt and provide a clean slate for your financial future. Despite this common goal, these bankruptcy processes approach the problem of debt from two very different directions.
Chapter 7 bankruptcy is a liquidation process. Through court orders, the debtor is required to liquidate all or most assets and personal property to pay off creditors, such as medical providers and credit card companies. An Orange County NY bankruptcy lawyer helps you protect some assets as exempt property, while a trustee is appointed by the court to oversee the sale of property and payment of creditors.
On the other hand, Chapter 13 bankruptcy is a reorganization process that makes your debt easier to pay, rather than erasing it. In a Chapter 13 bankruptcy, you don’t have to sell any of your property or assets, which is a relief for many people, but you do have to follow a court-ordered schedule for repayment to creditors that can last between three and five years. As your debt is reorganized, the remainder of your debt, which is the amount you can’t repay in the allotted timeframe, isn’t erased until your bankruptcy case is final.
Two Sets of Eligibility Requirements
Chapter 7 and Chapter 13 bankruptcies don’t just differ in structure and form, each has its own set of eligibility requirements. Often, the best path through bankruptcy is determined by these eligibility requirements, but not always. This is where a bankruptcy advice can help, and speaking with an Orange County NY bankruptcy lawyer provides more clarity on your specific situation.
Eligibility of Chapter 7 bankruptcy is based on a means test. Under the means test, which was only added to the Bankruptcy Code in 2005, weighs an individual’s amount of income, versus their expenses. An individual with little to no disposable income will qualify for Chapter 7 bankruptcy. Specifically in the State of New York, your household income for the six months before bankruptcy must be lower than the median income for a household of the same size in New York. This means test makes Chapter 7 bankruptcy the common option for individuals who lost their job or have been unable to work because of an injury or medical procedure.
Eligibility for Chapter 13 bankruptcy is based on the amount of debt held by an individual. As the Bankruptcy Code is a federal law, this requirement doesn’t fluctuate by state but can change from time to time as inflation and other factors influence debt considerations. As of 2018, you must have $394,7255 or less in unsecured debt or $1,184,200 or less of secured debt. If you cross these debt thresholds, you are ineligible for Chapter 13 bankruptcy.
Timeframe to Discharge Your Debt
Another hugely important consideration when filing for bankruptcy is timing. Chapter 7 bankruptcy is a far faster and more concise process. An Orange County NY bankruptcy lawyer can help you discharge a Chapter 7 bankruptcy is three to five months, while Chapter 13 bankruptcy is much longer.
The repayment plan for a Chapter 13 bankruptcy can vary based on the individual’s income, amount of debt, and ability to repay. Usually, the shortest repayment plan is three years, while some people take five years to repay. Certain bankruptcy cases are outliers and can take much longer than the average five years.
Another timeframe you need to know before filing for bankruptcy is related to your credit score and credit history. Bankruptcy has a noticeable and detrimental impact on your credit score, and the sooner you can remove it from a credit report, the better. However, the timeframe for reporting is currently a set limitation. Chapter 7 bankruptcies remain on your credit report for 10 years, while a Chapter 13 bankruptcy is on your credit report for only seven.
Which Path Through Bankruptcy Is Best?
The decision on how and when to file bankruptcy is best decided with the aid of an Orange County NY bankruptcy lawyer. At Simon Haysom, LLC, our legal has provided bankruptcy advice and strategy in Orange County for more than 25 years. Today, we use this collective experience to help you. Contact our Goshen office at 845-294-3596.
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