Chapter 7 Or Chapter 13: Choose The Right Type Of Bankruptcy For You

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If you are unable to pay your bills, have too much debt or are in danger of loosing your property to foreclosure, bankruptcy may be the right choice. There are several types of bankruptcy, but chapters 7 and 13 are the most commonly known and used by individual filers. Both types of bankruptcy can be beneficial, but they are very different in the way your debt and property is handled. If you are trying to decide which one might be best for you, read on for the main differences in chapter 7 and chapter 13 bankruptcy.

Chapter 7

Chapter 7 is known as a liquidation filing, since property you have can be liquidated to help pay your creditors. Chapter 7 is best for you if:

  • You have little-to-no income. Every state has income limits for chapter 7, which compare to the median income. A handy means test calculator can be found here.
  • You have little personal assets. The bankruptcy trustee who oversees your case can seize your property to help pay your creditors. You are allowed exemptions, however, so you can usually keep your family home and vehicles.
  • Want to be finished with your bankruptcy quickly. These cases typically close in 3-5 months depending on the case backlogs in your federal district.

Chapter 13

Chapter 13 is known as a re-organizational filing, since it allows you to pay back all or a portion of your debts by agreeing to an organized re-payment plan. Chapter 13 is best for you if:

  • You have more income than is allowed by the means test.
  • You have a lot of assets, such as real estate and bank accounts that you do not want to lose. For example, both a chapter 7 and a chapter 13 filing allows you to keep your primary home, but with a chapter 7 filing you may lose rental properties that are generating the income that you need to recover from your financial issues.
  • Your amount of debt falls below the limits of $383,175 of unsecured debt and $1,149,525 of secured debt. Unsecured debt is credit card and personal loans that have no collateral to back it up. Secured debt has collateral, such as a mortgage, to back it.
  • Are in no hurry to complete the bankruptcy and willing to pay the agreed upon debt off over a period of several years.

Though both types of bankruptcy stays on your credit report for 10 years and has the same effect on your credit score, some creditors may be slightly more willing to lend to a chapter 13 filer due to the good faith effort you put into paying your debts.

Whether you choose chapter 7 or 13, you will need to consult with a bankruptcy attorney for more detailed information about specific requirements and guidelines in your particular state. Working with an attorney, you can choose the method that gets you back on your feet and working toward rebuilding your financial state of well-being.

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26 June 2015

About Me

Getting Through Bankruptcy With Minimal Stress

Filing for bankruptcy has a tendency to make people feel ashamed and stressed out, and can turn into a big source of depression if not handled properly. As a counselor for couples and families, I have worked with various families throughout the years who have had to go through bankruptcy. And during this time, I have seen firsthand how, with the right mindset, going through bankruptcy can make people stronger in their financial lives and careers. I started this blog to provide information about the right things to do and the things that should be avoided while going through bankruptcy to minimize stress and maximize potential once the process is over. If you have any questions or concerns, hopefully they can be addressed on these pages.