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Example 1 -- Chapter 7 vs. Chapter 13Mary wants to know whether it is better for her to file a Chapter 7 petition or a Chapter 13 petition. The following facts apply to Mary's case: Debts: Other Pertinent Information:
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$40,000.00 in credit card debts will be discharged (i.e. forgiven) |
Disdvantages:
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Mary will need to account for the fact that she has $4,000.00 in nonexempt equity in one or more of her assets. She can do so by paying the $4,000.00 to an Interim Trustee for the benefit of her creditors or the Chapter 7 Interim Trustee will probably sell the particular asset(s) which make up this $4,000.00 and use the sale proceeds to pay Mary's creditors to the extent of the funds received. |
Additional Comments:
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If Mary wants to keep her car, she will need to continue making payments to her creditor, BIG BANK, having a lien on the car. |
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The lien remains on the car, although Mary's personal
obligation to repay the promissory note she signed when obtaining the car
loan will be discharged. |
If Mary successfully completes the following Chapter 13 plan, she can expect the following advantages and disadvantages:
Proposed Chapter 13 Plan
| Pay car lien (with 9% interest) |
approx. $9,965.00 |
| Pay credit cards | $4,000.00 |
| Pay partial Attorney fees | $850.00 |
| Pay Chapter 13 Trustee fee | $1,482.00 |
| Total to be paid: | $16,297.00 |
Monthly Chapter 13 Plan Payout = $453 for 36 months
Advantages:
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Credit card creditors will be paid a total of $4,000.00 and the remaining $36,000.00 (i.e. 90%) will be discharged (i.e. forgiven) |
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BIG BANK will be paid in full (with interest) and the lien held by BIG BANK on Mary's car will be released |
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Mary does not have to pay all of her Attorney's fees prior to the filing of her petition. Rather, some of Mary's Attorney's fees will be paid using money she sends to the Chapter 13 Trustee. |
Disadvantages:
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None |
In Mary's case, a Chapter 13 bankruptcy appears to be the wiser decision because she can hold on to her assets while eliminating her debts.
*We are a debt relief agency. We help people file for bankruptcy relief
under the bankruptcy code. Information on these pages is not legal advice. You
should consult an attorney for individual advice regarding your own situation.
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