Chapter 7 Versus Chapter 13 with Matt Schmidt

Filing for bankruptcy may seem daunting — but a professional can help. Outcomes vary state to state and depend on what the individual’s actual debt picture looks like. There are vast differences between filing a Chapter 13 or a Chapter 7, and thresholds to qualify for each one vary.

But no matter which route is followed, remember that the aim of bankruptcy is not to take away everything from a person. Rather, it’s meant to help them begin anew.  

“[Courts] They're not taking the shirt off your back. Bankruptcy is about a fresh start,” says attorney Matthew Schmidt.

In the third episode of Orcutt Answers, our host Shawn Orcutt welcomes Matthew, an associate at The Law Offices of John T. Orcutt, to explain the differences between filing a Chapter 13 and a Chapter 7, the role of a trustee and the general process for each type of filing. Matthew also talks about how not all debts are dischargeable, such as student loans or taxes (at least, for a certain amount of time).

The episode reveals what happens when someone’s financial circumstances change — for example, if they lose their job — and can no longer make payments to a trustee after filing Chapter 13. Matthew also shares some advantages from filing a Chapter 13, which can help a client turn their financial situation around.

“Because there's special power with that Chapter 13 trustee, we can actually, in some instances, pay less than what you owe,” says Matthew. “You're still going to walk away at the end, owning that car at the end of that five years outright and you will pay less.”

☑️ Featured Expert ☑️

Name: Matthew Schmidt

What he does: As an associate attorney at the law offices of John T. Orcutt, Matthew mainly practices in the Eastern District of North Carolina between Raleigh and Fayetteville. He focuses his daily practice entirely on consumer bankruptcy, but has also practiced criminal, DWI/Traffic and Social Security disability matters. 

Company: The Law Offices of John T. Orcutt 

Words of wisdom: “The situation is beyond everybody's control and we're all struggling. We're all unhappy with things. There's a way out.”

Connect: LinkedIn 

💵 Key Takeaways 💵

Here’s what we learned about debt and bankruptcy in this episode 

★    Means test thresholds vary by state and are the main step to deciding if someone qualifies for Chapter 7. Means tests look at the average income in the state and your area as well as what a client has left over after paying for their necessary expenses like housing, food and a car payment.

★    With Chapter 13, people may end up paying less than they owe. The repayment plan to a trustee can be less than what a person owes on their debt, such as with a lower interest rate.

★    It’s possible to go from Chapter 13 to Chapter 7. Chapter 7 is essentially for people who don’t have enough money to pay their creditors. But if their financial circumstances change and they can no longer afford Chapter 13 payments, Chapter 7 may be a viable option.

💡 Episode Highlights 💡

[02:26] The 411 on automatic stay vs. discharge orders: An automatic stay is an order that gets creditors temporarily off of people’s backs. It’s a quick fix to give people some peace of mind. A discharge order means you are no longer personally liable for debts.

[04:35] Not all debts are dischargeable: Matthew reminds us that not all debts are dischargeable, like student loans or taxes (at least, for a certain amount of time). However, medical bills, personal loans, credit card debts and other unsecured debts are generally dischargeable.

[05:36] Trustees are stuck in the middle: Trustees are advocates for creditors. They may not be looking out for a client’s best interest as their role is to administer a case.

[06:50] Liquidation has exemptions: Matthew explains that liquidation is not about taking the shirt off of someone’s back, and that it has exemptions. Houses, cars and household goods all have a certain amount of equity that is protected, and they vary by state.

[10:01] Means tests are used to decide if someone qualifies for Chapter 7 liquidation: In a means test, people deduct secured debt payments such as for a car, housing and food. If there is no money left over for creditors, then they qualify for Chapter 7, which also depends on the median income in your state.

[12:18] Chapter 13 is the repayment plan of bankruptcy: Matthew explains how Chapter 13 differs from Chapter 7 as essentially a repayment plan where a trustee is paid every month for 36 to 60 months. There are strategies for each filing, such as to save an asset like your house.  

[21:27] It’s possible to convert Chapter 13 to 7: If there is a change in financial circumstances, e.g., if an allowable expense comes up after the original filing, a trustee will allow for the conversion of a Chapter 13 to a Chapter 7.

📧 Contact 📧

Ready to speak to one of our experienced attorneys today? The Law Offices of John T. Orcutt are located across North Carolina in North & South Raleigh, Durham, Wilson, Greensboro, New Bern, Jacksonville, Southport, Fayetteville, Wilmington, and Charlotte. To schedule a consultation with one of our attorneys, visit our website at billsbills.com or call us day or night at 888-234-4190.

The insights and views presented in “Orcutt Answers” are for general information purposes only and should not be taken as legal advice for any individual case or situation. The information presented is not a substitute for consulting with an attorney. Nor does tuning in to this podcast constitute an attorney-client relationship of any kind. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. If you’re ready to talk to someone who understands what you’re going through, contact The Law Offices of John T. Orcutt today.