Chapter 7 Bankruptcy Vs. 13 in Oregon
Going through Chapter 13 or Chapter 7 bankruptcy will wipe out most of your debts, but the two chapters use different methods. In Chapter 7, the court can take your money and assets to pay off your creditors, then discharge, or wipe out, most of your remaining debts. In Chapter 13, you pay off some of your debts over several years before getting a discharge.
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Qualifications
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To file Chapter 7, your average income for the six months before you file has to be below the Oregon median or pass a "means test" after subtracting some of your expenses from your income. The Nolo legal website has an online means-test calculator to figure this out. To file Chapter 13, there's a limit to how much debt you can have. In 2010, for example, the maximum debt was $1.08 million.
Protected Property
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Oregon protects certain property from sale by the Chapter 7 court. In 2010, according to the Bankruptcy Information website, the exemptions included $7,500 in bank deposits; $600 in books, musical instruments and art; $1,800 clothing and jewelry and $25,000 in home equity (the value of your home not covered by the mortgage). If you have assets above the exemption -- $50,000 in the bank for instance, or $100,000 in equity in your house -- you can lose them in Chapter 7.
In Chapter 13, on the other hand, you don't have to sell your property; instead, you pay your creditors out of your disposable income for the next three or five years. If your assets are at risk in Chapter 7, Chapter 13 might be the better bet.
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Misconceptions
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There are some debts Chapter 7 and Chapter 13 can't wipe out, the U.S. Courts website states, such as alimony, child support, recent back taxes and DUI debts. Chapter 13 can't wipe out debts secured by a lien on property, such as a car loan or a mortgage. Chapter 7 can wipe out your mortgage, but not the lien, so your lender can still foreclose.
Considerations
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To file Chapter 13, the Nolo legal website states, you must show the court you have enough disposable income to make a payment plan practical. Disposable income is what's left after subtracting essential living expenses, priority debts and secured debts, all of which have to be paid. The Chapter 13 payment plan will run three years if your income is below the Oregon median income at the time you file; five years if it's not. If you can't afford a payment plan, you can only file Chapter 7.
Benefits
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If you want to go through bankruptcy without losing your house, you'll have to keep up your mortgage payments and make up any delinquent payments as well. One advantage of Chapter 13, Nolo states, is that you can pay off the back debt as part of your multi-year payment plan. You can do the same with back taxes and other debts that can't be discharged. In Chapter 7, there's no automatic payment plan.Once you emerge from bankruptcy, any creditors whose debts weren't discharged can take action against you just as if you never filed.
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