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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17223
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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What is the difference between Chapter 7 & Chapter 13 bankruptcy?

Customer Question

What is the difference between Chapter 7 & Chapter 13 bankruptcy? Also, if I was to file bankruptcy, besides taking a credit hit is there any other way it may affect me going forward?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 4 years ago.

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on

WALLSTREETESQ :

This is a common question,

WALLSTREETESQ :

A chapter 7 bankruptcy discharges all of the debtors debts, it is good for individuals with limited monthly income, and limited assets such as a home and car,

WALLSTREETESQ :

A chapter 13, is a payment plan bankruptcy and is used by higher income individuals to pay of their debts over a 60 month payment plan,

WALLSTREETESQ :

It can also reduce your balances to unsecured debts such as credit cards,

WALLSTREETESQ :

and allows you to catch up on missed mortgage payments.

WALLSTREETESQ :

In terms of credit rating it will lower your score within the first two years, however you would be able to obtain loans and credit after two years in most cases and have a good score.

WALLSTREETESQ :

In terms of other negative consequences, it may hurt you if you apply for a job that reviews your credit report,

WALLSTREETESQ :

or if you apply for a Rental apartment which the landlord runs a credit check and finds a bankruptcy,

Customer :

I have about 500K owed on a mortgage and the bank is in the foreclosure process and we just met in court and they offered me a Stipulation of Settlement where they basically said they will not sue me if I stop holding them up from foreclosing. If I sign those papers and then file Chapter 13 would I still have to pay them back or would I not have to because of the agreement which we signed?

Customer :

Just going with the assumption I would have to file Chapter 13 b/c I read somewhere that you had to make under 45K to file Chapter 7

WALLSTREETESQ :

Do you want to keep the home?

WALLSTREETESQ :

Can you afford the monthly mortgage and the past arrears?

Customer :

No I do not as it is a rental property

Customer :

No I can not

Customer :

in far Rockaway

Customer :

So it is basically worthless now as well

WALLSTREETESQ :

Then you can sign the stipulation, and list the mortgage as a debt, and have it discharged in a chapter 13 bankruptcy,

WALLSTREETESQ :

If they promise not to sue and waive any balance owed to them.

WALLSTREETESQ :

You would not have to pay them back in the chapter 13 plan,

Customer :

To my understanding if they did sue it would be for the mortgage as well as any subsequent legal fees etc. so that balance could be 600K and my whole key for filing bankruptcy would be to avoid paying that as well as the 1099C which I would be issued. So if the bank is the only institution I owe then it would be in my best interest to sign their agreement and then file Chapter 13?

Customer :

If I was to sign their paperwork this month then would I just need to file bankruptcy before the year ends or ASAP?

WALLSTREETESQ :

If you have no other debt a chapter 13 would not be approved,

WALLSTREETESQ :

so a bankruptcy may not be needed,

WALLSTREETESQ :

In terms of the 1099c that is an issue, you can file insolvency with the IRS and avoid any income

WALLSTREETESQ :

As the tax law for the 1099c expired in 2013, an insolvency may be best, to avoid the 1099c issue

Customer :

If I have no other debt outside of the mortgage it would be approved?

Customer :

Problem with insolvency is that you are only insolvent to the extent that all my liabilities are more than the FMV of all my assets so I would be paying taxes on the FMV of my property, any money that I have in bank acoc**ts and my 401K

Customer :

the cancellation of debt where you wont have to pay taxes was extended to 12/31/13 but that is only if it was my principle residence

Expert:  WALLSTREETESQ replied 4 years ago.
If you have no other debts it would not be approved as the mortgage is not a debt if cancelled, since this is an investment property, the bankruptcy can be used and if you list a mortgage and they do not ask for any payment it would be dismissed, so an insolvency will be the only way to avoid the 1099c issue, unless you do not sign the settlement, and discharge the mortgage through a bankruptcy.
Expert:  WALLSTREETESQ replied 4 years ago.
Another option is not to sign the settlement, and discharge the debt with a chapter 13 bankruptcy, and you would solve the 1099c issue, and in most cases the lender would be paid a small amount if anything at all, as they would have to file a proof of claim after the foreclosure stating how much the debt is,