We commonly get asked by people in Las Vegas contemplating individual bankruptcy whether they should file under Chapter 7 or Chapter 13. Here is what we explain:
Chapter 7 is the better option for a debtor who owns no valuable assets. The reason is that a bankruptcy case filed under Chapter 7 is essentially a liquidation of all your property that is not “exempt.” “Exempt” property is the amount of value your state allows you to keep in your home, clothing, car, and other necessities. Your non-exempt property may be sold by a bankruptcy trustee to raise money for your creditors.
For example, bankruptcy law applicable in Las Vegas allows you to keep $15,000 of equity in your car. If you own less than $15,000 of equity in your car, the bankruptcy trustee can’t sell it to pay your creditors. If you own $15,000 or more of equity in your car, the bankruptcy trustee can sell it, pay you $15,000 from the proceeds, and use the rest of your equity to pay creditors’ claims. (What often happens, however, is that your car is not worth very much, and the bankruptcy trustee “abandons” it instead of selling it. This means that you may get to keep your car even though it is not exempt.)
The entire Chapter 7 process usually takes no more than six months, after which you will emerge debt-free, with some exceptions. Certain debts, such as child-support and alimony payments, as well as student loans, may not be eliminated in any type of bankruptcy case.
A Chapter 13 bankruptcy, on the other hand, is the better option for people with a steady income and valuable property that they would like to protect. This is because you will not need to surrender any property under Chapter 13, so long as you can come up with a repayment plan. Under this repayment plan, you will use your future income to pay off debts during a three-to-five year period. After all the payments are made, you will receive a discharge of your debts.
If you live in Las Vegas and are contemplating an individual bankruptcy filing, call us at 702-880-5554. If you are calling from within Nevada, you can also reach us at 702-880-5554. We’ll help you determine whether a bankruptcy filing can benefit you, and if so, what type of case is right for your situation.