Chapter 7 or Chapter 13 Bankruptcy: Which to File?
You may not be aware of the types of bankruptcy if you’re only in the early phases of considering it. Two types of bankruptcy receive a lot of attention: Chapter 7 bankruptcy and Chapter 13 bankruptcy.
These two types of bankruptcy function quite differently even though it is possible to be eligible for both, and they yield different outcomes. In order to parse through the differences, you will want to consult with a knowledgeable bankruptcy lawyer. For some basic information regarding both Chapter 7 and Chapter 13 bankruptcy – what makes you eligible and how to choose between one or the other – read on.
Chapter 7 bankruptcy is intended to liquidate unsecured debts. Things like credit card and medical bills will be discharged by the bankruptcy court. If you own nonexempt property, it is possible that the trustee assigned to your case will sell that property in order to repay some of the debt to your creditors. Other debts like alimony and child support cannot be liquidated.
Where Chapter 7 is meant to eliminate debts, Chapter 13 bankruptcy is intended to help forcibly reorganize the debtor’s finances by imposing a strict repayment plan on the debts. For three to five years following the declaration of Chapter 13 bankruptcy, the debtor will be made to pay all of his or her disposable income toward those debts. By the end of that period, the debts will be cleared.
When to Choose Chapter 7 over Chapter 13 Bankruptcy
Because the trustee assigned to your case may sell your property, filing for Chapter 7 bankruptcy makes sense if you don’t own much property or you do and you’re simply not concerned with holding onto it.
If you are in a great excess of debt due to credit cards or medical bills, then Chapter 7 will completely eliminate them.
If you don’t have significant non-dischargeable debts such as child support payments or alimony, Chapter 7 makes the most sense. Without these, Chapter 7 may clear your debts completely.
When to Choose Chapter 13 over Chapter 7 Bankruptcy
There are certain circumstances under which a person is simply not eligible for Chapter 7 bankruptcy, in which case filing for Chapter 13 may be smarter. In order to be considered ineligible, a person must make below the median income for a household of his or her size in whichever state they are filing, and they must fail a means test.
When creditors are breathing down your neck for overdue payments, Chapter 13 can relieve the pressure by establishing a rigid payment plan. After 3-5 years, those debts will be liquidated if they have not been paid off.
Chapter 13 bankruptcy is also better for those who have significant non-dischargeable debts and minimal unsecured debts, such as credit cards. While the 3-5 year period may be difficult to endure, it can help control something like exorbitant student loan payments.
If you own property that you don’t want to lose, Chapter 13 bankruptcy is a better option than Chapter 7. In Chapter 13, the debtor forfeits no property whatsoever to a trustee.
Bankruptcy Help with Groce & DeArmon
If you have questions about how to file for bankruptcy, whether it be for Chapter 7, Chapter 13, or others, call Groce & DeArmon today. We offer free consultations to all clients, and we’ll be happy to speak with you about your debt situation.