Chapter 7 Bankruptcy Vs Chapter 13 Bankruptcy Exemptions

When deciding whether to file for bankruptcy, it’s important to understand the role that exemptions play in both Chapter 7 and Chapter 13 bankruptcy. Exemptions allow you to keep property that would otherwise be part of the bankruptcy estate – in other words, the property on which you still owe money. For instance, your home may have a property exemption that prevents the trustee from selling the house. You can also protect nonexempt equity in cars and bank accounts with bank account exemptions, which are generally limited to a certain dollar amount. In a Chapter 13 bankruptcy, the trustee who manages the case will use the value of your nonexempt assets to establish the amount you’ll pay creditors in your repayment plan.

Exemptions work differently in a Chapter 7 bankruptcy than they do in a Chapter 13. In a Chapter 7, you’ll lose property that isn’t covered by an exemption, which the trustee will sell to creditors for cash. To determine how much property is exempt, you’ll need to review your state and federal bankruptcy exemptions with can be done with a help of C&H Law Office. For example, some states limit the number of vehicles you can own to a specific value. However, other states allow you to keep any car worth less than a specified amount, even if you have a vehicle loan or lease on it. You can also apply a “wild card” exemption of any unused portion of the homestead exemption (which is typically limited to about $5,000) toward anything you own, including nonexempt property in automobiles.

The bankruptcy exemptions available to you will also determine which bankruptcy chapter you can file for. Chapter 7 bankruptcy is the most popular form of bankruptcy, and it’s possible for debtors with little or no disposable income to qualify. Before you can file for Chapter 7, you’ll need to pass a Means Test, which measures your household income against state averages. If you can’t pass the test, you’ll need to file for Chapter 13 bankruptcy instead.

In a Chapter 13 bankruptcy, you’ll develop a plan to repay your creditors over the course of three to five years. Like Chapter 7, filing for Chapter 13 also automatically stays most collection actions, such as lawsuits, wage garnishments and telephone calls demanding payment. The exceptions are debts that are not dischargeable, such as alimony and child support obligations, certain taxes, debts for educational benefit overpayments or loans made or guaranteed by a governmental unit and debts arising from death or personal injury caused by the operation of a motor vehicle while under the influence of alcohol or drugs.

In a Chapter 13 bankruptcy, you’ll be permitted to perform cramdowns or lien stripping on secured debts such as mortgages and automobile loans. A cramdown allows you to reduce the principal balance of a secured debt to match the current market value of the property. Creditors receive only pennies on the dollar for these debts in a bankruptcy, so you can often afford to pay them off over time.

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HI 96793, USA

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