Chapter 7 v. Chapter 13 Bankruptcy: Which One Is for Me?
If you feel as if you are drowning in the amount of debt, you owe, people may be telling you that bankruptcy is the way to go. While it is an excellent idea, you will need to know if you should file Chapter 13 or Chapter 7.
Today, we are going to cover both options, because it all depends on what your situation and your goals look like, if you should file for Chapter 7 or Chapter 13 as they will provide you some relief from the constant harassment of debt collectors.
Because as you may have already figured out there will be situations where you should file a Chapter 13 bankruptcy over filing Chapter 7 bankruptcy and vice versa.
Now let’s get into what a Chapter 7 and a Chapter 13 bankruptcy is and what their advantages and disadvantages are when you decide to file with them.
Chapter 7 Bankruptcy in Nevada
First thing is first, when in Nevada if you file a Chapter 7 bankruptcy, you will be clearing your slate of all your debts. You will then start out with a fresh slate, so to speak.
The Chapter 7 bankruptcy is basically a liquidation where your trustee will take your assets and sell them. However, the trustee cannot sell your assets that are not exempt, which will we get into that later in this article.
When the trustee sells your assets, they will pay you any amount left over after they pay your creditors. The creditors will get their money first. However, there will be a commission taken out, which goes to the trustee for doing this process for you and them.
But you will want to keep this mind when filing for a Chapter 7 bankruptcy. There will be some debts that cannot be cleared. These debts are the following:
- Child Support
- Certain Taxes
- Fraudulent Debts
- Student Loans
- Certain Items Charged
We will talk a bit more about this later in the article after we explain the Chapter 13 bankruptcy as most of these cannot be cleared in either bankruptcy.
You should also know under the Chapter 7 bankruptcy, you may get to keep a few secured debts, these secured debts can either be your house, furniture, or car. However, you will need to reaffirm those debts first.
You can do this by signing the “Reaffirmation Agreement”. If you choose that you want to keep your furniture, car, or house, you will be required to sign that agreement, and you will want to know that you will not be able to bankrupt those debts for another 8 years.
You will still be responsible for that debt and you will still be required to pay on it just like you did prior to you filing for bankruptcy.
One thing you should know is that in a part of reaffirming your debt is to bring it current. In simple terms, if you are behind on this debt, you will be required to make those back payments before you can fully reaffirm it.
You will also have the option to selectively reaffirm what debts you want to keep and what debts you do not as well. You don’t have to keep everything, if you wish not to.
You should also know that you are filling out the reaffirmation agreement can be put to the side for 60 days while it is filed with the court, or while the court is issuing an Order of Discharge.
Advantages of Chapter 7 Bankruptcy in Nevada
Now, that you have a better idea of what a Chapter 7 bankruptcy is in Nevada, let’s talk about the advantages of choosing this route rather than a Chapter 13 bankruptcy.
One major advantage that attracts many people to file a Chapter 7 bankruptcy over a Chapter 13 bankruptcy is that they get a fresh slate. All dischargeable debts are wiped clean and they can have the option to reaffirm some of their secured assets, if they wish.
Another major advantage of filing a Chapter 7 bankruptcy is that they will get instant protection against the debt collectors and wage garnishment from the moment they file. This means that all money and property you acquire minus inheritance after you file for Chapter 7 bankruptcy is yours to keep. The creditors or court cannot touch it.
Another major draw to the Chapter 7 bankruptcy is that there is no minimum amount of debt that you need in order to file.
But the last advantage is that your Chapter 7 bankruptcy case will be over and dealt with within a short time, such as 3 to 6 months.
Disadvantages of Chapter 7 Bankruptcy in Nevada
Just like with any other major life event, even Chapter 7 bankruptcy is not always rainbows and butterflies. Filing for a Chapter 7 bankruptcy also comes with many disadvantages as well.
One major disadvantage when filing for a chapter 7 bankruptcy is that a trustee will come in and sell all your non-exempt assets. However, you will have the option as we stated in the advantage section to keep your secured assets.
If you filed for Chapter 7 bankruptcy to save your home, it will not work. You will have an automatic stay since that is done when you file for the Chapter 7, but that is only temporary against your home being foreclosed on.
If you have co-signors on any sort of loan, they may end up being stuck with that debt, unless you decide to also file for bankruptcy protection. If you do not file for bankruptcy protection, your co-signors will be 100-percent stuck with that loan.
You can only file for Chapter 7 bankruptcy once every 8 years.
Chapter 13 Bankruptcy in Nevada
With a Chapter 13 bankruptcy, you will be on a 3 to 5-year repayment plan to your creditors. This repayment plan may require you to pay off either a part or ALL your debts with your future income.
You will be able to use the Chapter 13 bankruptcy to avoid your house going into foreclosure, pay back taxes, make up your missing mortgage payments, make up missing car payments, or halt interest from being added on your tax debt no matter if it is federal, state, or local level. However, you will be able to keep your valuable non-exempt assets as well, which we will discuss more about in a little bit.
If you follow all the terms of your repayment plan, all your dischargeable debt will be wiped away at the completion of your repayment plan. This will typically be in 3 to 5 years though.
You will want to keep in mind that the amount that you will be required in your repayment plan will be considered by a few different factors including your disposable income. Your disposable income will be determined by the Nevada Means Test.
People who decide to file a Chapter 13 bankruptcy is because they want to keep their secured assets, including their cars, homes, along with furniture. When their secured assets have more equity, they are then protected by the Nevada bankruptcy exemptions. In frank, the Chapter 13 bankruptcy is basically a reorganization as the Chapter 7 bankruptcy is a liquidation.
In short, the Chapter 13 bankruptcy will allow you the debtor to start making up your past due payments over a course of time and get back into the good grace of your original agreement. This is mainly for people who have very valuable non-exempt assets and you want to keep them.
In order to file a Chapter 13 bankruptcy, you are required to have a regular steady source of income, while also having some disposable income that you can pay towards your Chapter 13 repayment plan.
Advantages of Chapter 13 Bankruptcy in Nevada
Now, that you have a better idea of what a Chapter 13 bankruptcy is in Nevada, let’s talk about the advantages of choosing this route rather than a Chapter 7 bankruptcy.
One of the major draws to filing a Chapter 13 bankruptcy is that you will be able to keep ALL your property, it does not matter if it is non-exempt and exempt.
Unlike when you file for a Chapter 7 bankruptcy, your debts may not be cleared, but they are heavily reduced with your Chapter 13 repayment plan.
Just like if you chose to file for a Chapter 7 bankruptcy, you will also have instant protection against debt collectors right after filing for your Chapter 13 bankruptcy.
Unlike, when you filed for a Chapter 7 bankruptcy, if you have co-signors under a Chapter 13 bankruptcy, they will be protected against being liable for the debt.
You will also have instant protection against any foreclosure proceedings on your home. However, you will have certain requirements you must meet.
You will also have more ample time to pay your debts that cannot be wiped by filing either bankruptcy, which we will discuss here soon.
Unlike with Chapter 7 bankruptcy, you will be allowed to file a Chapter 13 bankruptcy anytime. You do not have to wait 8 years. You can also file repeatedly as well.
You will also can classify your creditors into different groups, which then they will receive different percentages when it comes to payments. This allows you to treat your debts where a co-signor is involved different than your own personal debts.
Disadvantages of Chapter 13 Bankruptcy in Nevada
Just like with any other major life event, even Chapter 7 bankruptcy is not always rainbows and butterflies. Filing for a Chapter 13 bankruptcy also comes with many disadvantages as well.
One major drawback when it comes to filing for a Chapter 13 bankruptcy is that their legal fees are much more money because it is a more complex situation.
However, your cash will also be tied up, while you are on the Chapter 13 bankruptcy repayment plan, which can cause some serious stress as well for the next 3 to 5 years.
You will want to keep in mind that another major drawback is that these repayment plans will last you up to 3 to 5 years after you file. This also means you will be going through this process for that entire time as well in the bankruptcy court.
Bankruptcy Exemptions in Nevada
Let’s talk about the Nevada bankruptcy exemptions, that we have briefly touched upon on earlier in this post.
Before we show you what you can exempt or what you can protect during your bankruptcy, you should know that you can exempt any sort of asset that will fall into the list below. However, the catch is that you can only exempt up to what amount is listed below. But the good thing is that you will be able to keep this exempted asset after you are done filing for bankruptcy.
But we do want you to know that there will be certain debts that you will not be wiped clean that we will take about in a few minutes as well.
First thing is first, an exemption limit will apply to any equity that you may have in your assets. Now an equity is the difference between what is owed on your asset and what the asset is worth.
For instance, if your asset is secured by a loan, such as your home or car, and you are not behind on payments, the equity will be covered by your exemptions. You may decide if you want to keep making your payments on this loan and keep this asset while you are going through the bankruptcy proceedings.
However, if the equity is will not cover your exemptions, then that gives the trustee the choice to liquidate your assets and distribute the money to the creditors. However, in this case, you will still be entitled to value these exemptions.
If you are married, you should also know that the bankruptcy laws will allow each of you filing jointly to claim your own set of exemptions, unless you noted otherwise.
If you would like to keep your non-exempt asset, you will need to pay the trustee what the value of that asset is.
You should also keep in mind when you are filing for bankruptcy in the state of Nevada, they also have certain federal exemptions along with the Nevada exemptions. We will go over the federal exemptions here in a minute.
Without further ado, here is the Nevada exemptions:
- Could be a mobile home or a real property up to $125,000. (married couple cannot double this)
- Must have homestead declaration prior to filing.
- Up to $350 per month annuity contract.
- Group health or life policy or proceeds.
- Fraternal benefit society benefits.
- Health avails or proceeds.
- Life insurance proceeds or policy, only if the annual premiums are $1,000 or under.
- Life insurance proceeds, only if you are NOT insured.
- Business partnership property.
- ERISA-qualified benefits up to $100,000.
- Public employees.
- Household goods, home, and yard equipment, and appliances up to $3,000 in total.
- Books up to $1,500 in total.
- Funeral service contract in a trust
- Health aids
- Pictures & keepsakes
- Automobile up to $1,500. There is NO limit if the vehicle is to provide mobility for a disabled individual.
- Geological specimens, metal-bearing ores, art paleontological or curiosities, these are required to be classified, arrange, numbered and cataloged in these reference books.
- A single gun.
- Workers compensation.
- Aid to disabled, blind, AFDC.
- Vocational rehabilitation benefits.
- Unemployment compensation.
Tools of Trade
- Library, tools, and materials, equipment up to $4,500 in total.
- Farm trucks, equipment and seeds, tools, and stock up to $4,500 in total.
- Arms, accouterments and uniforms you are required to use.
- Dwelling or cabin for miner, cars appliances for mining, but only up to $4,500 in total.
- 75% of your wages. However, the judge can authorize for a lower amount as well.
We have talked about the Nevada State exemptions, but now let’s talk about the federal exemptions. You should keep in mind that these federal exemptions will coincide with the Nevada state exemptions.
- Railroad workers
- CIA Employees
- Veterans’ benefits
- Social security
- Veterans’ medal of honor benefits
- United States court directors
- Judicial center directors
- Military service
- Lighthouse workers
- Supreme court chief justice administrators
Death & Disability Benefits
- Government employees
- War risk
- Hazard death or injury compensation
- Longshoremen and harbor workers
- Klamath Indian Tribe Benefits
- Military deposits
- Railroad workers’ unemployment insurance
- Seamen’s Wages
- Seamen’s clothing
Non-Dischargeable Debts in Nevada
Now, it is time to talk about those debts that cannot be wiped clean with filing for a Chapter 13 or a Chapter 7 bankruptcy in Nevada.
As we have previously mentioned, if you file with a Chapter 7 bankruptcy, you will still be held responsible for paying these debts. However, in the Chapter 13 bankruptcy, you will be paying these debts in FULL within your repayment plan. If they are not fully paid for, there will still be a balance following your bankruptcy case.
You will also want to keep in mind that you will still need to pay your secured debts such as your car or house, if you want to keep these assets.
Now, the debts that will NEVER be wiped clear in the state of Nevada even after you have filed for a Chapter 7 or Chapter 13 bankruptcy is the following:
- Alimony, Child Support, and other debts that pertain to family support.
- Any debts that stem from driving while under the influence of alcohol, meaning death or personal injury.
- Student loans.
- Any penalties or fines that was due because you violated the law, these will also include criminal restitution and traffic tickets.
- Income tax debts that were obtained in the last 3 years.
- All debts that you did not list in your bankruptcy papers.
However, there are some debts that can be turned into a non-dischargeable only by a bankruptcy judge when you file for a Chapter 7. These will only occur if the creditor challenges your request to wipe them clear. These debts can be one of the following:
- Any debts that were made with the basis of fraud.
- Credit card purchases that are more than $1,150 for luxury services or goods, within 60 days of you filing for a Chapter 7 bankruptcy.
- Cash advances or loans over $1,150 within 60 days of you filing for Chapter 7 bankruptcy.
- Any debts that were due to a malicious injury to someone else’s property, or someone else in general
- Any debts that came from breach of trust, larceny, and embezzlement.
- Any debts that you owe for you divorce settlement or decree, unless even after you file for Chapter 7 bankruptcy and you still cannot afford them. You may receive a discharge, but that will depend on the detriment to your ex-spouse.
When Should You Consult a Bankruptcy Attorney Nevada?
When you are ready to file for bankruptcy, it is time to consult an attorney. You will want to locate an attorney that will specialize in the bankruptcy you are looking to file.
It is best to meet with a few bankruptcy attorneys before making your pick. You want an attorney to represent you in case some of the creditors want to fight back or if you have a more complex situation than what they may be used to.
When you are finally ready to start the proceedings, you will want to ensure that you have ALL documentation of all debts that you owe. If you leave a debt out, that will still be on you. That debt won’t be cleared under the Chapter 7 bankruptcy or added to the repayment plan under the Chapter 13.