Common questions among people who are considering bankruptcy as a solution to their debt is which type of bankruptcy they should choose, and which allows them to keep their property. Let’s look closer at the difference between Chapter 7 and Chapter 13 bankruptcy, since these are the two types most commonly filed by an individual (rather than a business).
In Chapter 7 bankruptcy, the bankruptcy court can discharge most of the debt that you owe. However, the bankruptcy trustee may be able to take any of your property that is not exempt and distribute the proceeds to the creditors. Exemption laws differ depending on the state you live in, but there are several types of property that are included, such as:
- Homestead exemption protects equity in your home. The amount protected varies from none to all, depending on the state.
- You often get to keep the cash value of your insurance
- Retirement plan benefits are protected.
- Personal property is protected, such as furnishings, household goods, clothing (besides furs), appliances, books, etc. You may also keep jewelry up to a certain amount, usually around $1000. Your vehicle may also be included here, depending on the equity.
- Public Benefits such as welfare, social security, and unemployment insurance are fully protected.
- Tools used for your job are usually protected, up to a certain amount.
Chapter 13 Bankruptcy is somewhat different than Chapter 7. In Chapter 13, you file a repayment plan with the bankruptcy court, setting up a way to pay back all or part of your debts over time. The amount you have to pay depends on several factors, including how much you earn, how much you owe, what kind of debts you have, and how much property you own. You don’t lose any of your property in Chapter 13 bankruptcy, because you repay your debts through your income. Since this only works if you have a reliable and significant income, it will not be viable for every situation.
If you have any questions about Chapter 7 or Chapter 13 bankruptcy or need help deciding which is right for you, the legal team at Grennier Law would be happy to help you figure it out. Call today!