Chapter 7 Straight Bankruptcy vs. Chapter 13 Repayment Plan
Filing for bankruptcy protection protects you from creditors trying to collect a debt, suing you and obtaining a lien or judgment against you or your property. Basically, bankruptcy stops your creditors from contacting you and harassing you. After your debts are discharged in bankruptcy, if a creditor tries to collect against you, they would be in violation of the law and subject to fines and/ penalties.
Keep in mind though that bankruptcy may not be the right option for everyone. Bankruptcy is usually a last resort option when debts have become unmanageable for individuals and businesses, who want to either start over debt free or reorganize and reduce their debts by taking advantage of bankruptcy protections. Before making any decisions to file for bankruptcy protection, it is recommended that you discuss your financial situation with an experienced and knowledgeable Indiana bankruptcy attorney.
Chapter 7 vs. Chapter 13
There are different bankruptcy Chapters that individuals can file under including Chapter 7 and 13 under the Bankruptcy Code. Businesses may file under Chapter 7 or Chapter 11. An Indiana bankruptcy lawyer can explain the differences to you, and will assist you in deciding which Chapter gives you the best protections and which you are qualified to file under.
Individuals or businesses who have very little assets and no longer want to stay in business can take advantage of filing for bankruptcy protection under Chapter 7. Filing under Chapter 7 gives you the most benefit because you can start over without debt. There are certain debts that cannot be discharged under bankruptcy such as:
- Child and spousal support
- Student loans
- Debts owed as a result of fraud, embezzlement or larceny
- Debts you failed to disclose on your bankruptcy schedule
- Debts for willful and malicious injury
- Fines or penalties owed to the government
- Judgments against you for a wrongful death or personal injury lawsuits
- Condominium or homeowner association fees or assessments
In a Chapter 7 bankruptcy, your assets, except those which are exempt under the Indian bankruptcy laws, are sold to pay off your creditors. Indiana married couples who file for joint bankruptcy may double the exemptions amounts.
Exemptions available to Indiana residents filing for bankruptcy include:
- A homestead exemption for your personal residence up to $17,600. Also, any interest that a debtor has in property held as a tenant by the entirety is considered exempt
- Other real estate or tangible personal property up to $9,350
- Intangible personal property, including bank accounts and cash up to $350
- Professionally prescribed health aids belonging to the debtor or debtor’s dependent
- Interest in a retirement plan regarding contributions made on behalf of the debtor or debtor’s spouse
- Disability payments
- Social security, Medicare or Medicaid benefits, VA benefits
- Workers compensation benefits
- Unemployment benefits
- Contributions made by debtor to educational savings plans, as defined in Section 530(b) of the Internal Revenue Code of 1986 made at least one year prior to filing bankruptcy or in excess of $5,000
- Medical care savings or health savings accounts established pursuant to Section 223 of the Internal Revenue Code of 1986.
- The debtor’s interest in a tax refund or credit under Section 32 of the Internal Revenue Code of 1986 (the federal earned income tax credit) or IC 6-3.1-21-6 (the Indiana earned income tax credit).
If you wish to keep your car loan and/or your home mortgage, you can reaffirm those debts. If you default, your creditor has the right to repossess your car or foreclose on your home. You must also pass the Indiana means income test, which your Indiana bankruptcy attorney can determine for you. Any unsecured debts will be discharged by the bankruptcy court.
Chapter 13 is used by individuals with substantial assets that wish to keep their assets and reorganize their debts. You must enter into a court-approved repayment plan with your creditors, which is to be paid over a period of three to five years. After you complete your plan, your remaining unsecured debt will discharged. Your Indiana bankruptcy attorney can assist you with negotiating reduced debt with your creditors. Non-dischargeable debts are the same as those listed under Chapter 7 above.
Businesses may also file for reorganization under a Chapter 11, which is similar to Chapter 13. The advantage for the business to file under Chapter 11 is that company can remain in business, reduce their debts and get rid of their unsecured debts.
Indiana Bankruptcy Attorney
Since federal and Indiana bankruptcy laws are complex, hiring an Indiana bankruptcy attorney to represent you is recommended. An Indiana bankruptcy attorney can advise you of the advantages and disadvantages of filing for bankruptcy protection, represent you in negotiations with your creditors and in bankruptcy court and advise you of other options available to you if you decide not to file for bankruptcy.