Bankruptcy in America
What are Chapter 7 and Chapter 13? Is bankruptcy in the U.S. much different from bankruptcy in Canada? Here are the answers to these and other questions.
What is Chapter 7? What is Chapter 13?
Chapter 7 and Chapter 13 are sections of the U.S. Bankruptcy Code, the federal law governing bankruptcy in America.
A Chapter 7 bankruptcy is the American solution to personal debt problems that is most similar to a Canadian bankruptcy. A Chapter 13 bankruptcy is the American solution to personal debt problems that is most similar to a Canadian consumer proposal. Both the American types of bankruptcy have these features:
- The debtor is discharged from unsecured debts.
- As soon as the bankruptcy is filed, there is a stay of all collection efforts by creditors.
- A meeting of creditors is held soon after the filing, which the debtor must attend to answer questions about his or her case.
Chapter 7 and Chapter 13 bankruptcies have these differences:
- Chapter 7 is the solution of last resort, in which the individual cannot repay a significant portion of his debts. Chapter 13 is the solution in which the individual intends to repay all or a large part of his unsecured debts, but needs an extended period (three to five years) to do so.
- With Chapter 7, the debtor loses all assets beyond those considered necessary for basic living, which are called bankruptcy exemptions. Under Chapter 13, the debtor keeps all assets.
How does bankruptcy in the U.S. compare to Canada?
American personal bankruptcy differs from Canadian bankruptcy and consumer proposals in these ways:
- There are personal income regulations which determine whether a person is legally permitted to file for Chapter 7 bankruptcy. For example, there is a chapter 7 median income by each state in America that is updated approximately every 6 months. There are instances where people make above the Chapter 7 median income and can still qualify for a Chapter 7 bankruptcy as the calculation also takes into account expenses. If you do not qualify for a Chapter 7 bankruptcy, many people qualify for a Chapter 13 bankruptcy as long as their debt is under the Chapter 13 debt limits.
- Any American bankruptcy requires a petition to a bankruptcy court, where the judge examines such issues as whether the individual qualifies for Chapter 7, or has a viable repayment plan for Chapter 13. In Canada, not all bankruptcies or consumer proposals require court hearings.
- Any American bankruptcy requires a meeting of creditors, whereas this is often not necessary in a Canadian bankruptcy or consumer proposal.
- In an American bankruptcy, the professional that an individual uses is a bankruptcy attorney, a personal advocate, whereas in Canada, an individual uses a Licensed Insolvency Trustee, who is usually a professional accountant and whose role is to ensure fairness between the debtor and creditors.
American solutions are similar to those in Canada in these ways:
- Both Canadian and American consumers have the same common causes for financial difficulties.
- Both Canadians and Americans can use the debt solutions of debt consolidation and credit counselling with debt management.
- Bankruptcy in both countries is governed by federal law, with some regional or local variations in detail. Canadian bankruptcy exemptions differ from province to province, while American bankruptcy exemptions and the income criteria for Chapter 7 have state and local differences.
Can I have a U.S. bankruptcy if I live in Canada?
Any individual who lives, owns a business, or has property in the U.S. is eligible for Chapter 7 or Chapter 13 bankruptcy. However, having assets and debts on both sides of the border is a special case.
Anyone facing possible bankruptcy should seek professional help in the country where their situation is desperate. However, if they have major assets in the other country, their bankruptcy attorney or trustee is likely to hold up the bankruptcy until those assets are liquidated.
Where can I get more information?
To learn more about bankruptcy in America, go to Bankruptcy America. If you are suffering in Canada from debts which could lead to bankruptcy, contact a Canadian Licensed Insolvency Trustee in your area. We have trustees everywhere, ranging from Montreal to Calgary and more. Get your questions answered for free today!