You’re drowning in debt and in desperate need for relief from your hounding creditors. You’re considering bankruptcy, and the protections it has to offer. But which chapter should you file? Below, we discuss the advantages and disadvantages of filing Chapter 7 vs Chapter 13.
Why File for Bankruptcy?
When deciding to file for bankruptcy under Chapter 7 vs Chapter 13, it is important to understand that either chapter could help you manage your debts, such as the following:
- Home mortgage
- Car loans
- Tax debt
- Student loan debt
- Judgments from lawsuits
- Other secured and unsecured debts
What Is Chapter 7 Bankruptcy?
Chapter 7 is typically ideal for people with lower income (little to no disposable income) and with mostly consumer and non-secured debts. If you have a secured debt, such as car or home loan, there is a chance you could still keep your property, depending on the circumstances.
What Is Chapter 13 Bankruptcy?
Chapter 13 is known as the “reorganization bankruptcy.” When deciding between Chapter 7 vs Chapter 13, you may have to file for Chapter 13 if you make too much money. However, you may still choose to file for Chapter 13 bankruptcy even if you qualify for Chapter 7.
Chapter 13 is typically ideal for people who need extra time to catch up missed mortgages, car payments, student loans, taxes or other non-dischargeable debts. This bankruptcy chapter helps you manage your secured and non-secured debts through a court and creditor-approved repayment plan. Under this new, manageable repayment plan, you will repay your debts within three to five years.
When deciding whether to file for Chapter 7 vs Chapter 13, you must take into consideration whether you have the ability to make the monthly payments pursuant to the repayment plan.
Key Differences Between Chapter 7 vs Chapter 13
Debt is discharged faster in a Chapter 7, which usually lasts between three to five months. Under Chapter 7, you can repay your debt through whatever proceeds the Trustee can obtain after selling your nonexempt property. Lenders may request that the court lift the automatic stay placed on your home so the lenders can continue with foreclosure procedures. There is also a possibility that the court will repossess your car to satisfy your defunct car loan. Your debts are then discharged, even if they are not repaid in full.
Under Chapter 13, your assets are protected under the automatic stay. You are then allowed to keep all of your property, including your house, car and other nonexempt assets. However, in exchange, you still need to repay your debts as follows:
- You must pay in full the secured and priority debts
- You must pay the unsecured debts at least an amount equal to the value of the nonexempt assets
Depending on your circumstances and whether you meet the requirements, Chapter 13 may also:
- Remove unsecured junior liens from your real property
- Reduce the principal loan balance on your secured debts
A Bankruptcy Lawyer Can Help You Decide Between Chapter 7 vs Chapter 13
A seasoned bankruptcy lawyer at the Law Offices of Diane Anderson can help you decide which bankruptcy filing is right for you. We will evaluate your debt, income, assets, and your long-term goals before educating you on your bankruptcy rights.
Diane Anderson can help you throughout the Chapter 7 process of liquidating your assets to eliminate the majority of your debts. Or she can fight for your Chapter 13 bankruptcy rights by negotiating with your creditors so you can keep your property while repaying your debt in manageable repayments. Call 530-444-2007 today for a free case evaluation.