In the era of skyrocketing costs of living and stagnant wages, taking a high-interest loan or using credit cards sometimes seems like the only viable choice when it comes to supporting a family or running a business.
If you further add escalating medical bills, job loss, and/or costs of divorce to your existing personal debt, then you will most likely find yourself in insurmountable debt.
In these cases, many Virginians look into the option of filing bankruptcy to eliminate some of this debt.
A Virginia bankruptcy lawyer can assist you in finding a solution to your debt problem and guiding you through the different types of bankruptcy.
In this article, we will explain the differences between Chapter 7, 11 and 13. Give it a read and we ensure it will help you in making the right choice.
Before moving further, let’s have a brief description of the various types of Bankruptcy in Virginia:
Chapter 7: Filing this bankruptcy will clear out your unsecured debts. However, if you own valuable assets, then you might lose them as they could be liquidated to repay your creditors.
Chapter 11: This type of Bankruptcy is ideal for individuals with high net-worth. Chapter 11 temporarily protect your business, assets and/or income giving you time to restructure your finances.
Chapter 13: Requires repayment to creditors either fully or partially. Mostly useful for both secured and unsecured debts.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy also goes by the name 'Straight Bankruptcy' or 'Liquidation Bankruptcy'. It is one of the most common and preferred types of bankruptcy in VA, especially when the aim is to get discharged from unsecured debts and to not have to use your income to make payment to creditors. Whether or not you have assets, in a Chapter 7 you will not contribute income towards paying your creditors.
On the other hand, all your nonexempt assets will get liquidated and distributed to your creditors. This is why it is very important to consult a bankruptcy lawyer in Virginia to determine how to exempt assets, whether or not you have assets that cannot be exempted, and if so how to avoid losing them.
If you have a no-asset case and can qualify, a Virginia Chapter 7 bankruptcy is a great option because the case ends promptly with your receiving a discharge and not having to make any payments to creditors. However, in order to receive this discharge, the trustee and Bankruptcy Court will want to make sure that you do not have sufficient income to make payments to creditors.
As a result, qualifying for Chapter 7 bankruptcy in VA requires passing a Means Test. If your income is high and cannot be offset by necessary expenses, you may be ineligible for Chapter 7. In order to determine if you qualify, your income and expenses are compared to those in similarly sized households in your jurisdiction in Virginia.
Before filing under Chapter 7, you must consult a quality Virginia bankruptcy lawyer to assist you in passing the means test. Not all bankruptcy lawyers in Virginia have substantial experience in navigating the means test, and a good lawyer can greatly assist you in qualifying.
Virginia bankruptcy attorneys should be knowledgable on the applicable incomes for each household size and jurisdiction, and how to strategically classify and report expenses so that your case can pass muster with the bankruptcy trustee and Court.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy in Virginia includes a repayment plan that allows you to get a discharge partially or completely from your debts within three to five years.
If your income falls short of the median limit for your Bankruptcy VA household size than your bankruptcy may last for only three years, although you can still choose to do a five year plan if it is beneficial for you to do so. This could be the case, for example, if you have high mortgage arrearages that you cannot afford to pay back in three (3) years. If your income is "above-median" for your household size and Bankruptcy VA jurisdiction, you will have to do a five year repayment plan.
Chapter 13 Bankruptcy in Virginia helps you retain your property and get discharged from debts.
Also, if you are unable to keep up with your mortgage payments, than the bankruptcy will stop the foreclosure process. So not only can you keep your home but you will receive as much as five years to catch up with your late payments.
Chapter 13 is an ideal choice for addressing secured, unsecured and priority debts. While you must make payments to a trustee, a good Virginia bankruptcy attorney can help minimize these payments, and ensure that you get the most out of those payments by strategially structuring your Chapter 13 Plan.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy in Virginia is applicable to businesses and individuals with a large number of debts or income.
Chapter 11 focuses on protecting the assets and properties of individuals and businesses by restructuring their finances. Although the process is time consuming, it lets you retain control of your assets while in bankruptcy.
You also can negotiate with your creditors by asking them to lower your interest rates or suspend your payments until your finances exhibit some improvements. Unlike in Chapter 13, you are not required to file a repayment plan immediately at the beginning of your case. As a result, you are afforded more time to strategize with your bankruptcy lawyer and financial advisor on how best to navigate the bankruptcy process.
Filing Chapter 11 allows you to control your assets, protects you from lawsuits & foreclosures, and safeguards your property from liquidation. Furthermore, you can earn profits from your investments in the meantime.
Hopefully this article explained enough for you to understand the differences between Chapter 7, 11 And 13. If you have any other questions please contact us for a free consultation.
Note: This article is only for informational purpose. We recommend you to consult a professional Virginia Bankruptcy Attorney if you are considering filing Bankruptcy in Virginia.