Chapter 7 vs. Chapter 13 Bankruptcy

In life, things often turn out differently from what we originally planned. The financial curveballs of life can sideline you from fulfilling your financial obligations, settling expenses, paying your debts, and keeping up with your bills. When facing financial distress, Chapter 7 and Chapter 13 bankruptcy are among the available bankruptcy options that can help you find relief. An experienced Arkansas bankruptcy attorney can evaluate your unique situation and help you determine whether or not bankruptcy is right for you.

Here at the Bond Law Office, we are dedicated to offering experienced legal counsel and knowledgeable guidance to clients considering bankruptcy. Our legal team is available to discuss your unique financial situation and can help you explore all of your debt relief options. 

Whether you are considering filing for Chapter 7 or Chapter 13 bankruptcy, our team will educate you about the benefits and drawbacks of each option, determine your eligibility, and guide you through the entire bankruptcy process from start to finish. We proudly serve clients in Fayetteville and Fort Smith, Arkansas, as well as the surrounding areas of Waldron, Eureka Springs, Harrison, and the Arkansas River Valley area.

Understanding Your Bankruptcy Options

If your financial situation has pushed you to the point that you are considering filing for bankruptcy, it’s important that you understand your available options. Chapter 7 and Chapter 13 bankruptcy are the most common bankruptcy options for individuals, families, and business owners in Arkansas, but it’s important to understand the differences between the two.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is designed to help individuals and business owners wipe out most of their general unsecured debts and achieve financial relief. When a person files for Chapter 7 bankruptcy, the Arkansas court will appoint a trustee (an independent contractor) to oversee the bankruptcy case. The trustee will gather and sell all of the non-exempt assets and use the proceeds to pay off debt.

Non-exempt assets are the assets and property that can be sold in a Chapter 7 case, including second homes, second cars, vacation homes, family heirlooms, bank accounts, cash, bonds, stocks, and other investments. As mentioned above, the trustee will use the proceeds from the sale of these non-exempt assets to pay off some or all of your creditors. However, your exempt assets, such as your primary home, clothing, primary car, household appliances, and furniture will not be sold.

What Chapter 7 Can and Cannot Do

Filing for Chapter 7 bankruptcy in Arkansas can:

  • Eliminate your general unsecured debts, including unsecured personal loans, medical bills, and credit card debts.
  • Relieve you of many of your financial obligations, excluding child support and alimony payments.
  • Activate an automatic stay order on your existing debts. This automatic stay will immediately stop all collection efforts, creditor harassment, and wage garnishments.
  • Activate an automatic stay order that prevents creditors or debt collectors from foreclosing, repossessing, or evicting you from your home.
  • Help you rebuild your credit score gradually over time.

Filing for Chapter 7 bankruptcy cannot:

  • Wipeout student loan debts
  • Eliminate debts like fines and penalties, taxes, divorce settlement debts, criminal restitution, and fraudulent debts.
  • Relieve your responsibility to pay child support and spousal support (alimony).

Who Qualifies for Chapter 7 Bankruptcy?

Qualifying for Chapter 7 bankruptcy in Arkansas requires you to pass the bankruptcy "means test" and attend credit counseling courses. The bankruptcy means test will review your financial history, deduct payments and expenses, and determine your amount of disposable income.

If your income is lower than the median income for your household size in Arkansas, you automatically pass and can file for Chapter 7 bankruptcy. Arkansas's median income for household size is as follows:

  • One-person household — $46,689
  • Two-member household — $58,465
  • Three-member household — $67,020
  • Four-member household — $68,180

The figures listed above are for cases filed on or after May 15, 2021, but they are updated regularly. It’s also important to note that you can add $9,000 for each household in excess of four members.

When is Chapter 7 Bankruptcy a Good Option?

Chapter 7 may be a good option if:

  • You own only a few assets.
  • You have medical bills, significant credit card debt, and/or personal loans that can be wiped out or discharged.
  • Your income is lower than the state's median for your household size.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also referred to as the "wage earner's" plan, is available to Arkansas residents who earn a decent income but are burdened with debt. It involves creating a structured repayment plan to pay down your debt using your potential earnings. Chapter 13 bankruptcy also allows you to retain your assets, rather than sell them to pay off your debts.

Under Chapter 13, the individual seeking bankruptcy will propose a repayment plan to their creditors that is designed to repay their debts over a period of three to five years. Through this repayment plan, the individual can pay off some or all of their debts over an extended period using their future income.

Who Qualifies for Chapter 13 Bankruptcy?

Only people who have a regular source of income can qualify for Chapter 13 bankruptcy in Arkansas. Also, if your income is more than the state's median for your household size, you may be allowed to file for Chapter 13 bankruptcy.

When is Chapter 13 Bankruptcy a Good Option?

Chapter 13 may be a good option:

  • If you have a regular source of income.
  • If you own a large number of assets and you intend to keep them.
  • If most of your debts are non-dischargeable tax debts, student loans, and domestic support debts

Work with a Law Firm You Can Trust

At the end of the day, filing for bankruptcy can help you achieve some much-needed financial relief. Filing for bankruptcy is never something that anyone should be ashamed of. According to recent statistics from the American Bankruptcy Institute, there were over 7,500 bankruptcy filings in Arkansas in 2020 alone, including 4,220 Chapter 7 filings and 3,281 Chapter 13 filings. These consumers didn't go through the challenge of bankruptcy alone, and neither should you. If you or someone you know is considering filing for bankruptcy, you should consult with a knowledgeable bankruptcy attorney as soon as possible for detailed guidance.

Here at the Bond Law Office, we have the necessary experience and legal resources to assist and guide clients through the complexities of the bankruptcy process. As your legal counsel, we can evaluate your personal financial situation, educate you about your available legal options, and determine whether or not filing for bankruptcy makes sense for you. We can help outline a solution to protect your assets and finances, avoid potential pitfalls, and ultimately build a stronger financial future for yourself.

Contact the Bond Law Office today to schedule your own one-on-one consultation with a knowledgeable bankruptcy attorney. Our team can offer you the experienced legal counsel and strong advocacy you need throughout every phase of the bankruptcy process. Our firm is proud to serve individuals, families, and business owners in Fayetteville and Fort Smith, Arkansas, as well as the surrounding areas of Waldron, Eureka Springs, Harrison, and the Arkansas River Valley area — so call or reach out today to learn more about how we can help with your situation.


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