When facing the possibility of filing bankruptcy, one must choose between the chapter 7 and chapter 13 options, depending on their situation. Chapter 13 bankruptcy is the “reorganization” chapter in which the debtor maintains control over their assets while gradually repaying their debts through a three to five-year payment plan. Contrarily, Chapter 7 bankruptcy traditionally calls for the liquidation of all assets in exchange for the forgiveness of the filer’s entire debt. However, certain circumstances allow for a repayment plan within chapter 7 bankruptcy.
The Chapter 7 Repayment Plan
A debtor who wants to keep their assets and repay their debt in less than three years may choose to consider repayment through a chapter 7 bankruptcy filing. If a filer is interested in this method, they must meet income requirements and pass the Means Test for chapter 7 bankruptcy.
When you file for chapter 7, your assets are compiled to create a bankruptcy “estate.” At that point, a bankruptcy trustee becomes the owner of those assets. Usually, the trustee will arrange an auction of the assets and distribute the profit among your creditors. If you wish to reclaim your assets, you have two options: you may “settle” with the trustee for cash or make an offer to buy back your assets from the estate. In most cases, you can negotiate these “buybacks” into monthly payment plans with your bankruptcy trustee.
The Role of the Trustee
While a settlement or repayment plan may be the best option for you, it is important to consider that this solution may not be in your trustee’s best interest. A bankruptcy trustee is appointed to represent a creditor; therefore, they will always make decisions that are the most beneficial for your creditors. In some cases, they may not believe that a structured payment plan is the most efficient option. Instead, they might be willing to consider a lump sum payment from you or even a shorter repayment plan than you initially offered. If you intend to propose a settlement, be sure to consider the fact that the trustee may only agree to large lump sum settlements.
Despite the general guidelines regarding bankruptcy, varying situations may call for unusual or unprecedented courses of action. If you or a loved one is considering filing for bankruptcy, do not make your final decision based simply on the facts that outline each chapter or repayment option. The best course of action for getting rid of your debt is always to consult with a personal bankruptcy lawyer. The attorneys at Collins & Arnove understand the complexity of bankruptcy and the individual factors that can affect filing. Our office offers free consultations, so give us a call today 972-516-4255 or visit us online here:
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