Major Considerations In Choosing a Chapter 7 or Chapter 13
Video Transcribed: Oklahoma Bankruptcy Attorney Edward Kelley here, 1-888-Debtline answering your bankruptcy questions. We are in number two of the series, should I do a chapter seven or 13? Last time we talked about your income, this time we’re going to talk about is your debt secured or unsecured, major consideration in choosing a case.
Unsecured debts generally you’d probably like to liquidate them, or I should say you probably like to get rid of them completely in one fell swoop. That’s what the chapter seven liquidation bankruptcy is, you’re giving up your non-exempt assets, which often you don’t have any, so no harm to you, and you get rid of those debts in their entirety instantly, that’s credit cards, hospital bills, anything without collateral.
Secured debts of course, are debts that are tied to collateral guaranteed by collateral, home loan, car loan, et cetera. In another series we’ll talk about what truly is a secured debt. Sometimes what you think is collateral is not in bankruptcy and you can remove it as collateral and make a secure debt unsecured, or a debt may not really be secured even though the creditor thinks it is, but that’s for another day.
If you have a home and you’re current on it, that won’t prevent you from doing a seven, as long as you aren’t behind they can’t foreclose on you just because you file bankruptcy. If you have a car loan however, they can repossess the car even if your current if you file bankruptcy, they have that right on personal property. So you’ll need to reaffirm that. But again reaffirmations on cars in chapter sevens are very commonplace so not a big deal.
However, if you’re behind and want to keep that house or car then you’re looking at a 13, because if you file a seven while you’re behind, chances are you don’t have any money to catch up or you would be declaring that as an asset in the bankruptcy, if you suddenly have money to catch up that may look very strange to the bankruptcy trustee.
The property is in foreclosure and the creditor will file a motion to abandon the property, meaning the trustee gives it up, because there was no value to the trustee, assuming you don’t have any considerable equity and emotion to lift the stay, which we’ve talked about the stay several times, means that they can proceed with their foreclosure or whatever action they’re taking to repossess the house. You want to prevent that, you’ve got to file a 13 you do not have that power in a seven.
Same thing with a car, you’re two months behind, you file a seven, great. Automatic stay kicks in they can’t repo it, but they can file a motion, and unless you have money that you shouldn’t have, they’re going to repo it.
Again in a 13 you have the power in both the home and car to put the arrearage into your chapter 13 plan once your behind in the regular payment forcing the creditor to catch up, and also in the case of a car, allowing you to push down the interest rate in almost all cases if it’s exorbitant, and if your car was bought more than 910 days ago to cram down what you owe, or what is secured by collateral to the actual value of the car, which is often far, far lower than what you owe.
So big consideration, seven or 13, we talked about your income, now what kind of debt? Basically, what are you trying to accomplish? As always, Edward Kelley, 1-888-Debtline, you can call me to ask your questions, or reach me at Edward@WirthLawOffice.com, WirthLawOffice.com, or on Facebook at our group, Oklahoman’s for debt relief.