What Are the Differences Between Chapter 13 and Chapter 7 Bankruptcy?

 In Bankruptcy

Filing for bankruptcy can be a very difficult time in one’s life. Aside from the emotions and stress that come with it, the legal process can be extremely complicated, and the decision can have significant long-term effects on your credit and finances. It helps to have a knowledgeable and understanding attorney by your side throughout the process and familiarizing yourself with the different bankruptcy types will give you more confidence in your decision and help relieve some of the stress you feel.

Two of the most common types of bankruptcy are Chapter 13 and Chapter 7. If you ultimately do decide to file, it’s important to understand the advantages and disadvantages of each so you can make the best choice for your situation. Here, we’ll be outlining the main differences between Chapter 13 and Chapter 7 bankruptcy so you can make a more informed decision.

Chapter 13 Bankruptcy

Also known as reorganization bankruptcy, Chapter 13 gives individuals an opportunity to keep their property – including secured assets like their car or home – if a court-mandated payment plan has been completed within the allotted time. This typically takes three to five years, a lengthy timeline that is a drawback for some filers. Only individuals, including sole proprietors, are eligible for Chapter 13, and they must pay unsecured creditors an amount that equals the value of their nonexempt assets. Payments must be made monthly, and the debtor may have to pay back a portion of their general unsecured debts. To be eligible, an individual:

  • Must have a regular income
  • Must have more than $465,275 in unsecured debt or $1,395,875 in secured debt
  • Cannot have filed a Chapter 13 or 7 bankruptcy petition in the past several years
  • Cannot have filed a Chapter 13 or 7 bankruptcy petition in the previous 180 days that has been dismissed for certain reasons

If you’re very behind on paying things like your mortgage, medical bills, credit card debts, and personal loans, then Chapter 13 may be the right choice for you.

Chapter 7 Bankruptcy

Both individuals and businesses are eligible for Chapter 7, and debt relief can happen in as quickly as three to four months. This quick discharge is the main benefit of Chapter 7, but the speed comes at a cost. A trustee can sell all non-exempt property, and there is no way to catch up on missed payments. This means there is no protection from foreclosure or repossession. In order to qualify, filers:

  • Must pass a means test that factors in their income, expenses, and family size
  • Cannot have had a Chapter 7 or 13 discharge in the past several years
  • Cannot have filed a Chapter 7 or 13 bankruptcy petition dismissed for certain reasons in the previous 180 days

While there are some significant drawbacks, the fresh, fast start Chapter 7 offers is still appealing to many.

If you feel that filing for Chapter 13 or Chapter 7 bankruptcy will best help you relieve your debts or have more questions about your options, contact Diane K. Bross, PC today for the assistance you need!

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