- Author: George Haines
- Published
Earlier this summer the news wire was busy with reports that comedian Sinbad, whose real name is David Adkins, filed Chapter 13 bankruptcy in April listing nearly $11 million worth of debt and $131,000 in assets. Blogs (including this one) and news outlets picked up on the story and discussed Sinbad’s woes and his opportunities in bankruptcy. The problem was Sinbad didn’t file Chapter 13. He was not eligible.
The old saying goes, “The devil’s in the details.” In this case, the devil is in the amount Sinbad owes to the IRS: over $10 million. That amount exceeds the Chapter 13 non-contingent, liquidated unsecured debt limit for Chapter 13 cases, currently set at $383,175.00. Consequently, Sinbad is not eligible for Chapter 13 and must file under either Chapter 7 or Chapter 11.
In fact, Sinbad actually filed a Chapter 7 bankruptcy case back in April. There are no debt limits in Chapter 7 or Chapter 11 cases. It appears that Sinbad is seeking to discharge his tax debt through Chapter 7. A Chapter 7 bankruptcy case differs from Chapter 13 in significant ways. In a Chapter 13 bankruptcy, the debtor proposes to pay creditors as much as he can afford over three to five years. In a Chapter 7, a bankruptcy trustee liquidates the debtor’s non-exempt property and the proceeds are used to pay creditors. In either case, unsecured creditors that are not paid during the bankruptcy (like the IRS in Adkins’ case) are discharged.
Chapter 7 and Chapter 13 each have distinct benefits and your plan to proceed should be carefully considered by you and your attorney. Bankruptcy offers a fresh start to an honest individual overwhelmed by debt. You can maximize the benefits from bankruptcy by choosing the appropriate chapter. Discuss your options with your attorney and get the debt relief you need.
