Chapter 7 vs. Chapter 13 Bankruptcy
Your Personal Bankruptcy Options
By: Kevin Chern
If you are considering filing bankruptcy to help free yourself from debt, there are two main options under U.S. Bankruptcy Code. Deciding if either is right for you depends on your income and your debts.
Chapter 7 bankruptcy and Chapter 13 bankruptcy provide two types of protection for people with different financial needs.
In order to decide whether either is right for you, you'll need to understand a little about how these two types of bankruptcy work to help free individuals from unmanageable debts.
As each person's financial situation is unique, a local bankruptcy lawyer can help you explore Chapter 7 and Chapter 13 bankruptcy and be your guide through the process. Connect with a bankruptcy lawyer near you today who can evaluate your case—simply fill out our free case evaluation form or call 877-833-2410.
Chapter 7 Bankruptcy - Debt Elimination
Chapter 7 bankruptcy is a relatively quick court process that is designed to provide complete freedom from unsecured debts, such as:
- credit card debt
- medical bills
- payday loans
- personal loans
- overdue utility bills
Filing Chapter 7 bankruptcy might allow you to discharge unsecured debts to wipe the financial slate clean and make a fresh start in as little time as a few months.
Chapter 7 bankruptcy is often called "liquidation" because the bankruptcy trustee appointed has the option of selling or liquidating any non-exempt assets in order to partially repay creditors.
However, liquidation doesn't actually happen very often. Many people who file Chapter 7 bankruptcy do not have any non-exempt assets and are able to keep all of their property. Learn more about Chapter 7 exemptions
Chapter 7 is often appropriate for people who have:
- Fairly little property except basic necessities like furniture and clothing;
- Little to no money left after paying basic monthly expenses; and/or
- Not enough money to cover expenses each month.
Chapter 13 Bankruptcy - Debt Restructuring
Chapter 13 bankruptcy offers a "reorganization" of debt. This means a payment plan to catch up debts over time, without pressure from creditors.
Many people turn to Chapter 13 bankruptcy to stop foreclosure and catch up on mortgage payments if they've fallen behind, or if they have valuable property they might otherwise lose in a Chapter 7 bankruptcy case.
In most Chapter 13 bankruptcy cases, an automatic stay is entered immediately, stopping foreclosure actions, vehicle repossessions and other collection efforts. Then, a plan is developed to allow you to catch up on payments over a three-to-five year period.
Generally, Chapter 13 bankruptcy is an option for people who have regular income and the ability to pay current bills on time, and have unsecured debts of less than $360,475 and secured debts below $1,081,400.
Chapter 13 bankruptcy is often appropriate for people who have:
- A lot of equity in a home or another piece of real estate or property
- A regular income and the ability to pay living expenses, but have fallen behind on debts.
- Few credit cards, medical bills and other unsecured debts.
Advantages of Filing Chapter 7 or Chapter 13 Bankruptcy
While Chapter 7 and Chapter 13 both can offer the powerful protection of the automatic stay, there are several distinct advantages to each of these consumer bankruptcy options.
Chapter 7 bankruptcy advantages may include the promise of a clean slate through the complete discharge, or elimination, of most debts, and a quick resolution.
Chapter 13 bankruptcy advantages usually include the ability to protect property, a realistic schedule to catch up on past-due accounts (typical Chapter 13 bankruptcy repayment plans last 3-5 years), and protection for co-signers, such as parents or other relatives.
No matter which chapter of personal bankruptcy may be right for you, you can seek a fresh financial start and an end to debt. Contact a local bankruptcy lawyer. Your lawyer can help you evaluate your financial situation and debt relief needs, and discuss with you whether Chapter 7 or Chapter 13 bankruptcy might be the best fit for you.
Get in touch with a bankruptcy lawyer in your area who can evaluate your case. Simply fill out our free bankruptcy case evaluation form or call 877-833-2410.