Best Chapter

What chapter is best for you ?

There are a few choices when it comes to bankruptcy. Some choices will apply to you and some will not. Most people will opt for Chapter 7 to liquidate everything. Another common choice is Chapter 13, where you can keep most of what you own and pay back a portion over several years. If you are a family farmer of fisherman, you may consider Chapter 12. Chapter 11 is for business reorganization.

Are you married?

You are liable for your own debts or debts incurred through cosigning a loan. Oklahoma is a not a community property state. Husbands and wives are generally not responsible for their spouses debts as long as they are not joint debts.

Chapter 7: Fresh Start

In a Chapter 7 Bankruptcy in Oklahoma, most of your debt is eliminated, some of your property may go to creditors, and your unsecured debts disappear.

Assets that are not exempt may be sold by the trustee with the proceeds distributed to your creditors. Most cases are no-asset cases. This means, you have nothing for creditors to take, except your shirt and other items that are off-limits. You only have your debt to lose.

You cannot file another Chapter 7 bankruptcy and be granted a discharge for eight-years.

A couple things to know:

  • The eight-year rule only applies if your bankruptcy was discharged.
  • Doesn’t apply if your prior bankruptcy was a chapter 13 reorganization, and creditors received at least 70 percent of their claims.

The Means Test has only been around since 2005. It requires a complicated set of calculations that are supposed to identify those who can pay a significant portion of their bills and should be required to do so instead of shedding all obligations in a Chapter 7. The Means Test does not apply to debtors earning less than the median income for Oklahoma and most of those earning more than the median are still able to pass.

Always make sure your bankruptcy is in good faith. Make sure you review your bankruptcy paperwork thoroughly. If you don’t know the answer, look it up.

Chapter 13: Debt repayment plans

In a Chapter 13 bankruptcy, you propose a plan to pay your debt in 36 to 60 months. The two types of payments are to a trustee and payments outside the plan that are paid directly to the creditor.

Creditors usually don’t get much through bankruptcy, but once you are finished with the plan, you’re done.

You can’t eliminate debts in Chapter 13 if you have received a discharge in a prior case filed under Chapter 7, 11 or 12 within the past four years, or a discharge in a case filed under Chapter 13 within the past two years.

Even if you can’t eliminate your debts, you can pay your creditors in full over time.

To qualify for a Chapter 13 Bankruptcy, your debts must fall within specific limits. Your unsecured debts can’t be more than $307,675. Secured debts can’t exceed $922,975.

There are certain debts called priority claims which must be paid in full over the life of the Chapter 13 plan. The most common priority claims are support obligations and recent taxes. If you owe more back child support or taxes than you can pay in the five-year plan, then you will not be eligible for a Chapter 13.

The length of the repayment plan will depend on how much you earn and whether or not you have nonexempt assets. In every plan you will have to satisfy two tests: the best interest test and the best efforts test.

  • Best-interest test: This is to make sure that creditors would get at least as much as you would have paid in a Chapter 7
  • Best-efforts test: This is to make sure that you are doing the best you can

Decide between Chapter 7 and Chapter 13

An attorney can help you understand the implications of your choices and help you determine which option is best for you. Here are some things to consider.

Chapter 7 is a good choice when…

  • You don’t have assets that you have to surrender to a trustee
  • You’re current on your home and car payments, or willing to give them up
  • You don’t have much money left over each month after paying expenses
  • You haven’t received a bankruptcy discharge in an earlier case filed within the past eight years

Chapter 13 is a good choice when…

  • You want to catch up on your mortgage
  • You need time to pay past-due support obligations
  • You owe tax debts that you want to pay off without interest or penalties
  • You received a discharge in a bankruptcy case filed within the past eight years
  • You earn enough money to pay monthly expenses with ease and want to do your best to repay creditors at least some amount

Other Chapter 13 Bankruptcy advantages

  • You can pay taxes over time, possibly without interest or penalties
  • Your overdue alimony and child support can be stretched out and paid over three to five years
  • You can get your house and car payment up to date over the life of the plan
  • You can reduce your obligation to the value of collateral. If you have a $3,000 car, but you owe $5,000. You would only have to pay the $3,000
  • You can keep non-exempt property
  • You can get some relief even if you’ve received a discharge on a Chapter 7, 11, or 12 bankruptcy case filed less than eight years ago
  • You can protect a cosigner by agreeing to pay the cosigned debt over the life of the plan
  • You can back out or convert to a Chapter 7

Disadvantages of Chapter 13 Bankruptcy

  • It takes at least 3 years to complete
  • You’ll feel like you don’t have much flexibility
  • You might have to give up your income tax refunds
  • You may receive an unexpected windfall and have to give it to the trustee
  • You can’t incur more debt without permission from the trustee
  • If you lose your job your case may be dismissed
  • You may risk your homestead exemption if you move or sell your home
  • Most Chapter 13 Bankruptcies fail

Advantages of Chapter 13 repayment vs. repayment without bankruptcy

  • You can catch up on back alimony and child support
  • Automatic stay will be on your side. Your creditors will stop pursuing you
  • You don’t need permission from the creditor to cut your obligation
  • You can deal with secured debts such as your home and car
  • You pay a small percentage of your debts

Things to consider

  • Are your debts not consumer debts?
  • Are your debts primarily consumer debts?
  • Your income vs. median for Oklahoma? Click Here to See!
  • How much debt do you owe?
  • Have you had a previous Chapter 7 or Chapter 13 discharge?
  • Effect of non-dischargeable taxes, alimony, child support, or liability for personal injuries arising from drunk driving or boating.