How to Choose Between Chapter 7 and Chapter 13

Thanks for listening to another podcast session. Today, I will respond to a reader’s question. This question focuses on the automatic stay and understanding the difference between Chapter 7 and Chapter 13 bankruptcy.

Reader Question: Chapter 7 vs. Chapter 13 Bankruptcy and the Automatic Stay

Mandy and Rick are facing financial difficulties, but they will bounce back. It’s important to remember that setbacks are temporary, and we can approach life’s challenges with a positive mindset. I hear you; it’s easier said than done, but trust me, the other alternative does you no good.

I have a long list of clients who have bought new cars and homes after a couple of years of filing for bankruptcy. It takes time. It takes work. Nothing is easy, but trust me, you can do it. As I’ve stated many times before, I know you can because I’ve been there, and I bounced back!

Mandy and Rick fell behind on their car payments and couldn’t afford a lawyer. They read online that filing for bankruptcy would trigger an automatic stay, stopping the lender from repossessing their car. But it’s important to remember that the automatic stay doesn’t stop all cases from moving forward.

The Automatic Stay: Understanding the Limits

The automatic stay is a powerful tool, but it’s crucial to understand its limitations. For example, it would stop collection efforts, but it wouldn’t stop a criminal case from moving forward or family law cases related to child support and spousal support.

• Understanding How the Automatic Stay Works

Also, the automatic stay isn’t permanent. It ends when the bankruptcy case is closed or finished, and lenders can always seek to set aside the automatic stay.

Filing for Bankruptcy: Choosing the Right Chapter

Mandy and Rick filed for Chapter 7 bankruptcy. Chapter 7 offers debt relief but won’t protect assets secured by debts like car loans or mortgages when you’re behind on payments.

So, for Mandy and Rick to keep their car, Chapter 13 bankruptcy is their only option. With Chapter 13, the repayment plan will allow them to catch up on their missed payments. They also have to continue making their regular monthly payments.

• Key Steps in the Chapter 13 Process

The Chapter 13 bankruptcy plan lasts between three to five years.  

Fixing the Mistake: Converting from Chapter 7 to 13

Since Mandy and Rick filed for Chapter 7 in error, how can they fix it?

They did mention to me that it’s possible they can secure a loan from a family member to get current on their car payments. If so, they can dismiss their Chapter 7 bankruptcy case in two ways.

• Managing Medical Debt. Should You File for Bankruptcy or Get a Loan Consolidation?

1. They could file a motion to dismiss. Generally, the bankruptcy judge will grant that type of motion without a hearing.

2. They can skip the 341 meeting of creditors. By failing to appear, the trustee will file for a dismissal that will be granted by the bankruptcy judge.

Converting Chapters: A Relatively Simple Process

Converting from one chapter in bankruptcy to another is simple, but it requires a court motion and judge approval.

The good news is that bankruptcy judges often approve conversions if you can demonstrate your ability to make Chapter 13 payments.

So, listen in on the rest of this podcast, and as always, remember the information on this site does not constitute legal advice.

You can find additional categories by clicking below:

• Bankruptcy
• Your Wallet

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link. Podcast archives can be found via this link.

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.