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In a Chapter 13 bankruptcy, there are a number of exemptions that will allow the debtor to keep property, provided the plan provides for a distribution to creditors representing the value of assets over the exemptions. For instance, if parties have $50,000 in real estate equity above the exemption limit, then they would be able to retain that equity so long as they pay at least $50,000 to their creditors over the course of a five-year plan. This concept in a Chapter 13 confirmation requirement known as the liquidation test. A debtor must pay their creditors as least as much as they would receive in a theoretical liquidation.

What Are The Major Differences Between Chapter 7 And Chapter 13 Bankruptcies?

In Chapter 7 bankruptcy, the debtor seeks a full discharge of their debts. In Chapter 13 bankruptcy, the debtor seeks a discharge, but not of the full amount of their debt; they instead devise a plan for devoting their disposable income to creditors over the course of a three or five-year period. The discharge of debts in a Chapter 13 case occurs after the completion of this plan. In a Chapter 7 bankruptcy usually only takes 120 days from the time of filing.

Making a determination as to which type of bankruptcy is the correct choice for a particular debtor requires an analysis of what Bankruptcy Code chapter they are eligible to file, the result of the means test and what objectives they would like to accomplish. If someone is eligible for Chapter 7 bankruptcy, it’s usually advisable for them to take that route and move on with their lives, but this isn’t always an option.

Which Chapter Of Bankruptcy Is Better With Regard To Credit Scores?

Unfortunately, bankruptcy is the single biggest adverse event one can put on a credit report and can remain of record for 10 years. It is likely credit reporting agencies rate, Chapter 13 bankruptcies better than Chapter 7 bankruptcies. This is because in a Chapter 13 bankruptcy, proposing and following through with a plan to pay back creditors shows a good faith effort to address their debt. In addition, some articles provide that credit reporting agencies will remove a Chapter 13 filing after seven years on the individual’s credit report.

How Long Does It Take To Complete A Chapter 7 Or Chapter 13 Bankruptcy?

Under normal circumstances, a Chapter 7 bankruptcy can be completed within 120 days of filing. However, there are some exceptions. For example, if a creditor files a non-discharge ability complaint alleging that their debt should not be discharged through the bankruptcy based on a lie or misrepresentation of a debtor, then the case will continue until there is a resolution of that adversary proceeding. In addition, after a debtor has received a discharge of their debts in a Chapter 7 bankruptcy, the trustee in the administration of the case might sell some assets and pursue litigation against third parties. For instance, if there is a large account receivable that a creditor has given up on trying to collect, then the trustee may take that over and try to collect the debt. If the case were to go to trial, then the case would remain open during that time. In general, Chapter 7 bankruptcies are much quicker processes—even if there is an adversary proceeding seeking a non-dischargeable judgment against the debtor. Chapter 13 bankruptcies usually take three to five years to complete.

Get Information on Keeping Assets In Chapter 13 Bankruptcy, or call the Michael McLaughlin, LLC, for an initial consultation at (908) 373-8500 and get the legal answers you are seeking.

Michael McLaughlin, Esq.

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(908) 373-8500

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