Bankruptcy is the legal process of debtors eliminating or reducing their debts. There are two primary types of bankruptcy, Chapter 7 and Chapter 13.
In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, the debtor’s non-exempt assets are sold by the trustee appointed by the court. The proceeds from those sales are used to pay creditors on a pro-rata basis.
In a Chapter 13 bankruptcy, also known as reorganization bankruptcy, the debtor makes payments to an assigned Trustee over five years that are then disbursed among creditors on a pro-rata basis.
It is important to understand the differences between these two types of bankruptcies before making any decisions.
A Buyback Agreement is an arrangement between the Debtor and Trustee in a Chapter 7 bankruptcy that allows the Debtor to purchase back some or all of their non-exempt assets with money collected by the Trustee during the course of administering the case.
The value agreed upon by both parties must be reasonable but does not necessarily need to reflect fair market value.
It is beneficial for Debtors wishing to keep certain assets (e.g., vehicles) to have an attorney help them with this process as it can be complicated and requires knowledge of applicable law and procedure.
The money collected by the Trustee from Buyback Agreements is used to pay costs associated with administering the case and then distributed amongst unsecured creditors on a pro-rata basis according to priority claims established under federal law.
Bankruptcy can be an effective way for individuals dealing with overwhelming debt loads or other financial hardships to get relief from their debts while still keeping some personal property like vehicles or real estate that may otherwise be taken away in order to satisfy creditors’ claims.
Understanding how each type of bankruptcy works, and learning more about buyback agreements in Chapter 7 bankruptcies, can help individuals make informed decisions about their financial future while navigating through this complex process with assistance from experienced attorneys familiar with applicable laws and procedures.
Whether someone decides that Chapter 7 or Chapter 13 is right for them, understanding these basics can help ensure they will get out of debt quickly and on better financial footing going forward.
A chapter 13 bankruptcy is different from chapter 7 in many ways, but one key distinction relates to asset values accepted by the court without challenge.
This means that if you file for chapter 13 bankruptcy, you do not need to worry about having your assets liquidated through buyback agreements like you would in chapter 7 cases.
Additionally, instead of having 12 months or less (like in chapter 7 cases) to pay off your unsecured creditors, debtors filing for chapter 13 have up to 5 years (60 months) which can make it easier for people who may not have enough money right now but anticipate having more money down the line when they come out of their financial hardship period quicker than anticipated.
Finally, there are other advantages such as being able to spread payments across multiple years instead of having one lump sum due at once. This can make it easier for some people depending on their particular financial situation when filing for chapter 13 bankruptcy rather than chapter 7 .
For those who are struggling with debt but still want to keep their assets, filing for Chapter 13 bankruptcy can be a great solution.
Unlike Chapter 7, where asset values can be challenged and unsecured creditors must be paid off within 12 months, in a Chapter 13 case the assets are generally accepted without question, and payments to unsecured creditors can be spread out over 5 years.
This is beneficial for individuals who have the means to make regular monthly payments over time, provided their financial situation remains stable and they adhere to their repayment plan.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you are worried about credit rebuilding after.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.
That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and the steps to take, call us for a free consultation.
Parker and DuFresne