When considering filing for bankruptcy there are a number of things to consider. Of those, it is important to evaluate whether you should look into filing a Chapter 7 or a Chapter 13 Bankruptcy. Probably the first thing to address is income. There are specific income requirements to file for a Chapter 7 Bankruptcy. Many people that are eligible for a Chapter 7 choose this option as it is a complete discharge of debt without any repayment.
That being said, there are a number of reasons why a debtor who is otherwise eligible for a Chapter 7 may be interested in a Chapter 13 bankruptcy instead. On potential reason may be the amount of property or assets an individual has and the ability to exempt that property. When filing for bankruptcy you are entitled to keep certain types and amounts of property. For example, in Missouri a debtor can keep up to $15,000 dollars in equity in a home and up to $3,000 dollars in equity in one motor vehicle. There are a number of other exemptions, but we will deal with these two for now. If a debtor owns a home that is worth $100,000 dollars and owes $75,000 dollars he has $35,000 dollars of equity in the home. As he is entitled to keep $15,000 dollars in equity, this particular debtor would be $10,000 dollars over the equity he is entitled to keep.
From this point there are a few options. If the debtor qualifies for a Chapter 7 he can still file the Chapter 7. However, the $10,000 dollars in equity is the property of the bankruptcy estate. The debtor can pay that money to the bankruptcy trustee, to then be distributed to creditors. In some cases the debtor may be able to settle for a portion of the money owed to the bankruptcy estate. If the debtor does not wish to make this payment the bankruptcy trustee can choose sell the asset, here the home. The debtor would be entitled to a portion of the proceeds covered by the available state exemption.
Alternative to a lump sum payment or sale of the asset, the debtor may choose to file a Chapter 13 Bankruptcy instead. In a Chapter 13 Plan a debtor can take the unexempt equity in the home and distribute that amount to creditors over the course of a three to five year repayment plan. The specific details about the debtor’s case will determine what percentage of the creditors will be paid back and the length of the debtor’s repayment.
If you have questions about this, or would like to set up a free consultation, contact a St. Louis Bankruptcy Attorney Today.