Differences Between Chapter 7 and Chapter 13 Bankruptcy in New York
With bankruptcy filings occurring daily in New York, it is somewhat surprising to see that the vast majority do not know much about these laws and what they entail. Considering it is such a common issue with the potential to affect many people, it is important that one has a basic understanding of this process.
One of the main problems is that many cannot detail what the difference is between Chapter 7 and Chapter 13 bankruptcy. With the inherent complexity of these processes, it is necessary to have an eye for detail along with knowledge of the laws if you ever have to deal with a bankruptcy. But even with a basic understanding, it is advisable to use an attorney who specializes in bankruptcy law if you ever have to deal with the situation.
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The overarching differences between the two, in the state of New York, is the way in which debt is repaid, the timeline for the debt to be repaid, and the issues of protecting assets as opposed to liquidation. Knowing the process New York has with regard to these two classifications of bankruptcy, including what exemptions are available, is very important in developing the proper course of action for your personal situation.
Eligibility for Bankruptcy
Chapter 7 is the most common type of bankruptcy and is available to both individuals and businesses, including corporations. This type of bankruptcy allows certain debts to be eligible for elimination. Chapter 7 is an option when an individual's income is at or below the median income of the state that the debtor lives. This requires a "means test" to determine whether Chapter 7 is allowed.
Chapter 13, on the other hand, which is sometimes called a "wage earners" plan, enables individuals with regular incomes to develop a plan to repay all or part of their debts. Debtors will propose a repayment plan, and depending on their income, will be paid in installments over a set amount of time. This is for those who can pay both their living expenses as well as make payments to creditors.
Debt Repayment
As for the differences between the two, the biggest one is the repayment of debts. In a Chapter 13 proceeding, the individual is required to develop a payment plan to give money back to creditors. This plan is court ordered and assumes that you can pay back what you owe.
In Chapter 7, the individual is not required to implement a payment plan and certain debts can simply be eliminated. Although Chapter 7 bankruptcy tends to eliminate most debts, there are several exceptions. As for the most common of these, you will still be liable for taxes, student loans, child support, civil fines and criminal fines. There are limited circumstances where taxes, along with student loans, can be dismissed due to extreme hardship. Student loans are dismissed occasionally, but tax obligations are very difficult to defer liability.
Bankruptcy Timeline
There is a major time difference between the two processes, as a Chapter 13 bankruptcy follows a much longer timeline than a Chapter 7. In fact, a Chapter 7 will not have a timeline at all and tends to take only around four to seven months to complete.
With chapter 13, on the other hand, the timeline is a very important part of the process. A Chapter 13 bankruptcy procedure will last anywhere from three to five years depending on the income of the individual in question. The plan itself is a proposal of what debts will be paid and over what period of time.
Protecting Assets or Liquidation
When it comes to assets, the process gets a bit more complicated. Your assets are protected under Chapter 13, whereas in Chapter 7 you may only be eligible for partial protection of your assets. Although it must be mentioned that New York law in particular allows for protection of all or a portion of your property from being seized by creditors, giving you some options that would normally be unavailable.
In Chapter 13, although you have to deal with a payment timeline, you may be saved from foreclosure or repossession, allowing you to keep your house, car or other parts of your property. Since a Chapter 13 is not a liquidation bankruptcy, you are able to keep your assets no matter what the state exemption protections are.
In a Chapter 7 bankruptcy, although it rarely happens, the Bankruptcy Court can liquidate your assets if they are not protected by your state's bankruptcy exemptions. This is possible, but not likely in New York where there are substantial exemptions for real estate, automobiles and other types of properties.
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