Are you wondering about bankruptcy differences? Chapter 7 and Chapter 13 bankruptcy in Oregon have 9 key differences you need to know. When you’re preparing for bankruptcy, your lawyer will need to determine which type of bankruptcy to file. As described below, Chapter 7 and Chapter 13 have fundamentally different purposes, requirements, and outcomes.
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Purpose
People often refer to Chapter 7 as “liquidation” bankruptcy. While you can obtain a quick discharge of many debts, the bankruptcy trustee can sell any non-exempt assets. You don’t have the opportunity to make up for missed payments. In contrast, people often refer to Chapter 13 as “reorganization” bankruptcy. You agree to a payment plan over several years to allow you to pay back most or all creditors, including catching up on missed payments. At the end of the plan, most remaining debts are discharged.
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Who Can File
Individuals and businesses can file for Chapter 7. Only individuals (including sole proprietors) can file for Chapter 13.
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Income Limits
Chapter 7 has income limitations on who can file. If your current monthly income does not exceed Oregon’s median income, you are eligible. If your income is greater, you must satisfy the “means test”.
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Means Test
The means test applies to potential Chapter 7 filers with income above Oregon’s median income. It’s an analysis to determine whether you have enough disposable income to cover some or all of your unsecured debts. If you fail the means test, you cannot file Chapter 7.
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Debt Limits
Chapter 13 bankruptcy has debt limits for filers. The law states that your “unsecured debts [must be] less than $526,700 and secured debts [must be] less than $1,580,125 as of the date of filing for bankruptcy relief. 11 U.S.C. § 109(e).”
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Repayment Plan
Chapter 7 has no repayment plan. Chapter 13 involves setting up a monthly lump-sum repayment to be distributed to your creditors. You need to continue making payments for the entire plan to receive your discharge.
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Timeframe
Because Chapter 7 involves liquidation, it’s typically much quicker than Chapter 13, often resolving in only a few months. Chapter 13 repayment plans last three to five years.
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What Happens to Non-Exempt Property
In Chapter 7 cases, the trustee can sell non-exempt property to satisfy debts. That’s why it’s very important to work with an attorney who can advise you on exemptions that may apply to help you keep your property. In Chapter 13, you can keep your property and repay missed payments, but you’ll have to pay back unsecured creditors for non-exempt property.
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Special Rules
Both types of bankruptcy have some special rules that don’t apply to the other type. As an example, Chapter 13 filers can remove unsecured junior liens from real estate through a process called lien stripping. It’s not available in Chapter 7.
FAQs About Bankruptcy Differences
How do I know which type of bankruptcy to file?
Speak to a bankruptcy attorney who can give you an honest assessment of your bankruptcy case based on your individual income, debts, and overall financial situation.
Do I need a lawyer to file for bankruptcy?
We strongly recommend that you hire a lawyer. Bankruptcy may seem simple on the surface, but many extremely complicated federal and state laws could affect your case. It’s best to have a knowledgeable and trained professional handle such an important financial matter for you.
Reach Out to an Oregon Bankruptcy Attorney to Turn Over a New Leaf
If you’re struggling with debt and feeling pressure from your creditors, reach out to our firm for legal advice. We offer free and confidential consultations for Oregon debtors and their families. There’s nothing to lose by talking with an experienced attorney at the Law Offices of Alexzander C.J. Adams, P.C. about your debt-relief options. To get started, call us at 503-278-5400 or toll-free at 888-588-5410, or you can complete our online contact form. We look forward to hearing from you!
