Chapter 7 & Chapter 13 Bankruptcy FAQ

Bankruptcy of people and businessesIf you’re facing overwhelming debt in Alabama, you’re not alone. Many individuals and families find themselves in this situation, and bankruptcy can be a powerful tool for achieving financial relief. But with two main chapters – Chapter 7 and Chapter 13 – the process might seem confusing. At Loris Law Firm, we focus on guiding clients through Chapter 7 and Chapter 13 bankruptcy processes, ensuring they understand each step and how it applies to their unique situations. Here are 15 FAQs to guide you through Chapter 7 and Chapter 13 bankruptcy:

What is bankruptcy? 

Bankruptcy is a legal process provided under Title 11 of the U.S. Code to help individuals and businesses discharge or reorganize their debts under the protection of the bankruptcy court.

What are the key differences between Chapter 7 and Chapter 13 bankruptcy? 

Chapter 7 bankruptcy liquidates your assets to clear debts, ideal for those with limited income. Chapter 13, on the other hand, restructures your debts into a repayment plan over three to five years, suitable for individuals with a steady income. This makes Chapter 7 a quick resolution option, whereas Chapter 13 helps retain your assets while paying off debts.

Who qualifies for Chapter 7 bankruptcy in Alabama? 

To qualify for Chapter 7 bankruptcy in Alabama, your income should be below the state median for your household size. If your income exceeds this threshold, you may still qualify by passing a means test that evaluates your finances. This test ensures that only those truly unable to pay their debts can file under Chapter 7.

Can I keep my home and car if I file for Chapter 7 bankruptcy in Alabama? 

In Alabama, filing for Chapter 7 bankruptcy may allow you to keep your home and car through specific exemptions. The homestead exemption protects up to $15,500 of equity in your home, while there are additional exemptions for your vehicle. These protections ensure that you can maintain essential assets while managing bankruptcy.

What debts are discharged in Chapter 7 bankruptcy? 

In Chapter 7 bankruptcy, most unsecured debts, including credit card debt, medical bills, and personal loans, can be discharged. However, student loans, specific tax obligations, alimony, and child support are generally not dischargeable. This allows individuals to eliminate many financial liabilities while still fulfilling essential legal responsibilities.

What does a Chapter 13 repayment plan entail in Alabama? 

A Chapter 13 repayment plan involves restructuring debts into a manageable payment schedule over three to five years. The plan’s payments are calculated based on your income, total debt load, and necessary living expenses. This arrangement allows debtors to retain their assets while systematically reducing their debt burden.

How does Chapter 13 bankruptcy differ from debt consolidation?

Chapter 13 bankruptcy provides legal protection against creditors and may reduce the total debt amount, whereas debt consolidation in Alabama typically involves taking a new loan to pay off existing debts without such legal protections.

Is converting from Chapter 13 to Chapter 7 allowed? 

Conversion from Chapter 13 to Chapter 7 is permissible under federal law if you can demonstrate a change in circumstances that makes the Chapter 13 repayment untenable.

What is the impact of bankruptcy on credit score? 

Filing for bankruptcy will lower your credit score initially, but it provides a platform to rebuild financial stability over time.

What is the duration of bankruptcy on credit reports? 

Chapter 7 stays on your credit report for 10 years, while Chapter 13 remains for 7 years, reflecting federal guidelines.

What if I cannot complete my Chapter 13 repayment plan? 

In Alabama, you might modify your repayment plan, convert to Chapter 7, or in rare cases, qualify for a hardship discharge if unforeseen circumstances like illness or job loss occur.

Does all income affect bankruptcy proceedings? 

All income, including regular gifts, welfare benefits, and household contributions, must be reported and will affect the proceedings of your bankruptcy in Alabama.

Can personal bankruptcy discharge business debts?

For sole proprietors in Alabama, personal bankruptcy can discharge business-related debts along with personal debts under Chapter 7 or reorganize them in Chapter 13.

What are the requirements for filing bankruptcy? 

To file for bankruptcy, you must submit a petition along with comprehensive financial statements detailing your assets, liabilities, income, and expenditures. Additionally, you are required to complete a credit counseling course approved by the U.S. Trustee Program before filing. This course is intended to help you assess your financial situation and explore alternatives to bankruptcy. Proof of course completion must be filed with your bankruptcy petition. These steps are designed to ensure that all parties understand the financial circumstances and the debtor is informed about the process and other debt relief options.

Starting the bankruptcy process in Alabama? 

If you are grappling with debt and unsure of your next steps, Loris Bankruptcy Law Firm is here to provide clarity and support. Begin by consulting with a skilled bankruptcy attorney in Mobile, AL to assess your situation and discuss potential routes. Initiating the bankruptcy process can seem daunting, but with knowledgeable guidance, it can lead to a promising new financial path. Reach out to us today and set up a consultation to explore how we can assist you.