Deciding On The Type Of Bankruptcy That Is Right For You
Posted on: 9 May 2023
The bankruptcy code describes several different types of bankruptcy. These codes cover everything from farms to businesses and more. The two most used codes for consumer bankruptcies are found in Chapters 7 and 13. These two ways to obtain debt relief differ in many important ways.
Below you will find some major ways that these two popular forms of bankruptcy differ.
How Chapters 7 and 13 Differ
The main differences between the two types are as follows:
Eligibility: Chapter 7 bankruptcy is available to individuals and businesses who meet certain income requirements and have little or no disposable income. Chapter 13 bankruptcy is available to individuals with regular income who have debts below a certain amount. Income amounts are not pertinent to a Chapter 13 bankruptcy.
Liquidation vs. repayment: Chapter 7 bankruptcy involves liquidating assets to pay off debts, while Chapter 13 bankruptcy involves setting up a repayment plan to pay off debts over a period of three to five years.
Exemptions: In Chapter 7 bankruptcy, certain assets are exempt from liquidation, such as primary residences, vehicles, and personal property up to a certain value. In Chapter 13 bankruptcy, individuals can keep their assets if they continue to make payments according to the repayment plan. Exemptions, therefore, are not part of Chapter 13 at all.
Duration: Chapter 7 bankruptcy typically takes about three to six months to complete, while Chapter 13 bankruptcy can take up to five years to complete.
Impact on credit: Both Chapter 7 and Chapter 13 bankruptcy can impact a filer's credit score. However, those filing Chapter 13 may have the perception of a better credit risk since they are at least attempting to pay their debts.
Discharge of debts: In Chapter 7 bankruptcy, many unsecured debts, such as credit card debt and medical bills, may be discharged completely. In Chapter 13 bankruptcy, some debts may be discharged, but individuals are typically required to pay back a portion of their debts through the repayment plan. In most cases, Chapter 13 filers cannot expect entire debts to be forgiven as they would with Chapter 7.
The choice between Chapter 7 and Chapter 13 bankruptcy depends on an individual's financial situation, income, and assets. An experienced bankruptcy attorney can help individuals understand their options and make the best decision for their circumstances. Learn more about this important choice by speaking with a bankruptcy lawyer about your financial situation in detail.
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