Questions & Answers
Our most common questions asked:
Chapter 7 is often called “straight bankruptcy” or “liquidation.” In Chapter 7, debtors walk away from their dischargeable debts and their non-exempt assets are liquidated by the Chapter 7 trustee to repay the creditors. Most Chapter 7 cases filed by individuals are “no-asset” cases – which means there is no property available for the trustee to sell. No-asset cases typically last approximately 3 to 4 months. People usually file Chapter 7 when (a) they have no non-exempt assets to lose; (b) they can’t afford a repayment plan; or (c) they simply want to put all of the financial stress behind them and obtain a fresh start.
Chapter 13 is a repayment plan administered by the Bankruptcy Court. The debtor proposes a plan and makes payments to the Chapter 13 trustee, who then disburses the funds to creditors based upon the terms of the confirmed plan. Chapter 13 cases typically last between 3 and 5 years. During the term of the plan, the debtor’s property and assets are under the jurisdiction of the Bankruptcy Court and the debtor cannot incur debt or dispose of his or her assets without the Court’s prior approval. People usually file a Chapter 13 case when (a) they have debts that cannot be dealt with in Chapter 7; (b) they have assets they would lose in Chapter 7; (c) they are not eligible to receive a Chapter 7 discharge; or, (d) they earn too much money to qualify for Chapter 7.
The decision regarding which chapter to proceed under is extremely important. Every client’s situation is different and the correct choice depends on the particular facts of that client’s case. There are positives and negatives to filing under either chapter, so it is very important that you be completely candid and forthcoming when discussing your case with your attorney. Remember: an attorney’s advice usually is only as good as the information it is based upon.
Immediately upon the filing of a bankruptcy petition, the bankruptcy estate is created. In Chapter 7, it consists of all of the debtor’s assets at the time the case is filed (except assets which are statutorily excluded or claimed exempt). It also includes inheritances, life insurance proceeds, and property settlements, which the debtor becomes entitled to within 6 months after the case is filed. See 11 U.S.C. Section 541. The bankruptcy estate in Chapter 13 includes all of the property which would be included in a Chapter 7 estate, plus any property the debtor acquires after the case is filed and while the case is pending. See 11 U.S.C. Section 1306.
The bankruptcy estate is very expansive and falls within the Bankruptcy Court’s exclusive in rem jurisdiction. Consequently, debtors may not dispose of, sell, quitclaim, pledge, gift, trade-in, or otherwise transfer property of the bankruptcy estate without first obtaining the Court’s authorization.