Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
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If you’re considering filing bankruptcy, you probably have questions about the differences between Chapter 7 and Chapter 13 bankruptcy.
In order to decide which type of bankruptcy is right for you, it’s important to take a hard look at your finances and the features of each type of bankruptcy.
Chapter 7 Bankruptcy
If you have a large amount of unsecured debt and own little property, Chapter 7 bankruptcy may be a good debt-relief option.
Under Chapter 7 bankruptcy, debtors may have many unsecured debts discharged. Unsecured debts may include, but are not limited to:
· credit card bills
· medical debt
· payday loans
· utility bills
· parking tickets
Secured debts (like home or car loans)may be reaffirmed, which means the debtor agrees to continue making the payments on the loan and is able to keep the secured property as long as the payments are made on time.
Chapter 7 Liquidation
Under Chapter 7, the bankruptcy court has the option to liquidate (sell) some of the debtors non-exempt property in order to partially repay creditors.
A limited amount of personal property and home equity are exempt from liquidation.
But don’t panic, most Chapter 7 filers get to keep all of their property. Talk to a bankruptcy lawyer about whether your property may be considered exempt.
Chapter 7 Eligibility
In order to qualify to file Chapter 7 bankruptcy, a debtor must pass the Chapter 7 means test.
The means test considers the debtor’s income as compared to state median incomes and the debtor’s ability to pay off debts within five years.
Debtors who do not qualify for Chapter 7 bankruptcy may be able to file Chapter 13 bankruptcy instead.
Chapter 13 Bankruptcy
Debtors who own their homes or have a large amount of equity in their homes may find Chapter 13 bankruptcy to be a better option than Chapter 7 bankruptcy.
Under Chapter 13 bankruptcy, debts are reorganized and debtors are allowed to keep their personal property.
After filing Chapter 13, debtors submit a three- to five-year repayment proposal for the court’s approval.
If all payments are made on time, the balance of some unsecured debts may be discharged after the end of the repayment period.
Chapter 13 bankruptcy is a good option for people who have had a temporary setback, like a job loss or serious illness, but who have a regular income and can repay their debts according to an approved repayment plan.
Which Type of Bankruptcy Should You Choose?
After gathering your bills, you may wish to meet with a local bankruptcy lawyer to get information about the bankruptcy laws in your state.
Each state has different exemptions for Chapter 7 bankruptcy and a different median income level.
By discussing your debts with a bankruptcy lawyer, you may be able to better understand your state’s bankruptcy laws and be able to make an informed decision about which type of bankruptcy is right for you.
