Understanding The Differences Between Chapter 7 And Chapter 13 Bankruptcy

Declaring bankruptcy is never an easy decision, but it can help you escape the burden of overwhelming debt and give you a fresh financial start. Chapter 7 and Chapter 13 bankruptcy are the most common types of bankruptcy that an individual may choose to file for. Both have their own unique procedures and implications, so it's important to understand the differences before you make any decisions. In this blog post, we'll explore the key differences between Chapter 7 and Chapter 13 bankruptcy and help you understand which option may be right for you.

Chapter 7 Bankruptcy

Chapter 7 is also known as liquidation bankruptcy and is the most common type of bankruptcy filed by individuals. Basically, it involves selling off your non-exempt assets to repay your creditors. If you don't have any valuable assets or equity in your home to sell, then this bankruptcy could be a viable option for you. To qualify for Chapter 7, you'll need to pass the means test, which is a financial evaluation to determine if you qualify based on your income and expenses. The key benefit of filing Chapter 7 bankruptcy is that it's a quicker process, usually taking about three to six months to complete. Additionally, it allows filers to discharge most of their unsecured debts, such as credit cards, medical bills, and personal loans.

Chapter 13 Bankruptcy

Chapter 13, or reorganization bankruptcy, is different from Chapter 7 in that it involves creating a repayment plan instead of liquidating assets. Chapter 13 allows filers to keep their assets and repay their debts over a period of three to five years through a court-approved repayment plan. The amount of debt that filers pay back depends on the filer's income, expenses, and types of debt. Many people choose this option because they have unpaid mortgages, car loans, and other types of secured debts, which cannot be completely discharged in Chapter 7. Chapter 13 is also beneficial to those who do not pass the means test as it does not require a qualification process.

Key Differences

One of the most significant differences between Chapter 7 and Chapter 13 is in the way that the bankruptcy handles valuable assets. In Chapter 7, assets are sold off to repay creditors, while in Chapter 13, they are kept and repaid through the repayment plan. Additionally, Chapter 13 is more viable for those with regular sources of income, while Chapter 7 is better for those with little income or assets. Chapter 7 has a much faster timeline than Chapter 13, but it restricts the types of debts that can be discharged. Chapter 13 allows for more types of debts to be discharged, but the process can last up to five years

Filing for bankruptcy is a complex and highly regulated process, and choosing the right type of bankruptcy can make all the difference in your financial future. While Chapter 7 and Chapter 13 have some similarities, they have major differences that can impact your long-term financial situation. At Tadross Law, our experienced bankruptcy attorneys can help you understand the bankruptcy process and choose the right option for your unique financial situation. Contact us today to schedule a consultation and take the first step towards financial freedom.