Middletown Attorneys Explain How Chapters 7 and 13 Handle Certain Debts Differently
Are any types of debt eliminated by all types of bankruptcy?
For more than two decades, residents from Port Jervis, Monticello, Goshen and the mid-Hudson Valley, NY area have relied on the attorneys at Hayward, Parker & O’Leary Esqs. We analyze prospective clients’ finances and help them select the best form of bankruptcy from our Middletown office. Depending on the types of debt you hold, certain forms of bankruptcy may suit your needs better than others. Debts can be discharged under either Chapter 7 or Chapter 13 include:
- Payday loans — Many lenders make serious threats regarding payday loans, despite FDCPA prohibitions. Payday loans are dischargeable under Chapter 7 or 13.
- Many debts held by the elderly – Many elderly persons in debt who rely on Social Security or pension payments are, in practice, judgment proof — meaning they have no assets a creditor could garnish — because Social Security and pensions are exempt.
- Credit card debt — Credit card debt is unsecured, and fully dischargeable under any bankruptcy chapter. This includes debt owed by military personnel to AAFES on the Military Star Card
- Medical bills — Hospital debt from medical issues is among the most common reasons for bankruptcy. Most medical debts are fully dischargeable under Chapter 7 and Chapter 13.
- Some income taxes — Where there are no fraud or tax evasion concerns, most income tax debt that is more than 3 years old is dischargeable under both Chapters 7 and 13. However, income tax debt less than 3 years old is not dischargeable in Chapter 7, but can be discharged in Chapter 13 providing the full amount due is paid over the course of the plan.
What debts are only taken care of by one form of bankruptcy?
While Chapter 7 and Chapter 13 can both handle debts from car loans, the options under each Chapter of bankruptcy are different. Under Chapter 7, you may:
- Surrender the vehicle — If you can no longer afford payments on the vehicle, you may surrender it to the lender in satisfaction of the debt.
- Reaffirm the loan — Reaffirmation requires you to enter an agreement with the lender and continue to make payments. Reaffirmation survives bankruptcy, so it should be considered carefully.
- Redeem the vehicle — Redemption lets you make a lump-sum payment of the vehicle’s retail value. After the payment, a discharge is granted.
- Continue to pay the loan — You can continue to pay the existing loan, not reaffirm the debt and hope that the lender does not repossess the vehicle. This option is very risky and may not be worth it for most debtors.
Under Chapter 13, you may also surrender the vehicle or continue to make payments, but additional options exist
- Strip-down – a “strip-down” reduces the loan amount to the value of the car. Whether your vehicle qualifies for a strip-down depends on technical requirements, including the number of payments remaining and whether the car qualifies as security on the loan.
- Cram-down – A “cram-down” lets a borrower force certain modifications to the loan terms. For example, the loan can be paid over the entirety of the Chapter 13 plan rather than the terms of the contract.
Similarly, Chapter 13 is more likely to relieve marital debts and domestic support obligations. These debts are not dischargeable under Chapter 7 but may be in limited cases under Chapter 13 if the full value is paid over the course of the plan.
Are there debts that no form of bankruptcy takes care of?
Student loan debts are one of the few areas where neither Chapter 7 nor Chapter 13 bankruptcy is helpful in most cases. The rare circumstance where a student loan can be discharged requires an “undue hardship.” Courts are extremely reluctant to discharge student loans under this standard. It is typically advisable to enter into a repayment agreement because of the powerful tools the government has its disposal to capture student loan payments. These include the ability to:
- Seize income tax refunds
- Seize Social Security benefits
- Garnish up to 15% of your disposable income each pay period.
- Sue you in state or federal court
- Notify credit reporting agencies
Contact us for strategic bankruptcy planning
The different bankruptcy chapters each have their own benefits and drawbacks. Working with one of our experienced Hayward, Parker & O’Leary Esqs. attorneys can maximize the amount of debt your eliminate. Schedule your free consultation by contacting us today via phone at 845-343-6227 or online.