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Chapter 7 Vs Chapter 13 Bankruptcy

When it comes to filing for bankruptcy, many individuals find themselves overwhelmed by the choices and the different implications and benefits of each type of bankruptcy. Two of the most common types of personal bankruptcy are Chapter 7 and Chapter 13. Understanding the key tenets of each of these types of bankruptcy and the differences between them can help you make an informed decision if you are considering filing for bankruptcy. For further information and assistance with making this important decision, contact a bankruptcy lawyer today.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the sale of a debtor’s non-exempt assets by a trustee. The proceeds are used to pay off creditors. The key benefit of Chapter 7 is that it provides a fresh start by discharging most of your unsecured debts. It’s typically faster than Chapter 13, often taking just a few months from start to finish.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, known as a “reorganization bankruptcy,” allows debtors to keep their property while repaying creditors through a court-approved repayment plan, often drafted with the assistance of an attorney. This plan usually lasts three to five years. Debtors make monthly payments to a trustee, who then distributes the funds to creditors. This type of bankruptcy is suitable for individuals with a regular income who can afford to make these payments.

Which Debts Can Be Discharged In Each Type Of Bankruptcy?

In Chapter 7 bankruptcy, most unsecured debts such as credit card debt, medical bills, and personal loans can be discharged. However, certain debts like student loans, child support, and most tax debts are typically non-dischargeable. Chapter 13 bankruptcy also allows for the discharge of unsecured debts at the end of the repayment plan, but some debts that cannot be discharged in Chapter 7 may be discharged in Chapter 13, depending on the specific circumstances. Discussing your specific debt with an experienced lawyer can help you determine if Chapter 7 or Chapter 13 is more beneficial to you.

What Are The Eligibility Requirements For Chapter 7 And Chapter 13?

Eligibility for Chapter 7 bankruptcy is determined by the means test, which assesses your income and expenses to see if you qualify. If your income is below the median for your state, you are likely eligible. For Chapter 13, you must have a regular income and your secured and unsecured debts must fall below certain limits set by the bankruptcy code. If you don’t meet these criteria, Chapter 13 might not be an option for you.

How Will Chapter 7 And Chapter 13 Bankruptcy Affect My Credit?

Both Chapter 7 and Chapter 13 bankruptcies will impact your credit score, but the extent and duration can vary. A Chapter 7 bankruptcy can remain on your credit report for up to 10 years, while a Chapter 13 bankruptcy stays on for up to 7 years. Despite the initial negative impact, bankruptcy can also provide a path to rebuilding your credit by discharging debts and stopping collections, which can allow you to start fresh financially. Attorneys like those at Resolve Law Group can attest that with responsible financial behavior, it is possible to improve your credit score over time after filing for bankruptcy.

Can A Lawyer Help Me Choose The Right Type Of Bankruptcy For Me?

Navigating the complexities of bankruptcy can be challenging without professional assistance. A specialized lawyer can help you understand your options, ensure that you meet all filing requirements, and represent your interests throughout the process. Consulting with an experienced attorney before making this decision can ensure that you make the best choice for your future.

Seeking Professional Guidance

Whether Chapter 7 or Chapter 13 bankruptcy is right for you depends on your specific financial situation and long-term goals. Both types of bankruptcy hold various benefits for people in need of financial assistance, but they each hold different implications and have different requirements. Consulting with a lawyer can provide the clarity and direction you need to make an informed decision.