When you’re overwhelmed with debt, you may have questions about Chapter 7 vs. Chapter 13 bankruptcies. You need answers from an attorney who has extensive experience with various types of bankruptcy to help you make the best choice possible. Our bankruptcy lawyers at Law Office of Jack G. Lezman have helped thousands of clients navigate the complex legal arena of bankruptcy. Let us deal with the legal issues while you move forward with life.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” allows you to discharge most of your debt. Eligible individuals may qualify for this type of bankruptcy through a Means Test. This type of bankruptcy is geared towards lower income individuals who have mostly consumer and non-secured debt. If you have secured debt, such as car loans and home mortgages, you may be able to keep your property in certain situations. When comparing Chapter 7 vs. Chapter 13, an attorney can help you determine which is right for you.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also called “reorganization bankruptcy,” helps you obtain more beneficial payment arrangements for your debts. There is no means test to determine eligibility for this form of bankruptcy, as most people qualify. Chapter 13 will help you manage all of your debts, including secured, non-secured, and others. It allows you to keep your property, lower interest rates, and pay off many of your debts in a timely manner.
Which Type of Debt Is for Low Income Debtors?
When considering Chapter 7 vs. Chapter 13, your income is a factor. Low income debtors generally qualify for Chapter 7 and can obtain a discharge of the majority of their debt in this fashion. However, higher income people must often file Chapter 13 because they are able to repay many of their debts.
Which Type of Bankruptcy Can Businesses File?
Chapter 7 bankruptcy can be filed by individuals and business entities. Even if you file as an individual, you may be able to do away with business debt. However, Chapter 13 can only be filed by individuals. Sole proprietors may also file Chapter 13; however, larger businesses cannot.
How Long Does Each Type of Bankruptcy Take?
Although both Chapter 7 and Chapter 13 will manage your debt, there is a big difference in how long they take. Chapter 7 is the fastest form of personal bankruptcy, typically taking four to six months to complete. However, Chapter 13 can take several months to establish a payment plan, which can last three to five years.
When comparing Chapter 7 vs. Chapter 13, both types of bankruptcy require several court hearings. However, after an initial meeting of creditors, your attorney can typically appear for you in court. This will allow you to carry on with your life, attend work, and avoid missing things due to bankruptcy hearings.
Types of Debt You Can Eliminate Through Bankruptcy
Chapter 7 vs. Chapter 13 will both help you eliminate debt through bankruptcy. You may have to liquidate some of your property in Chapter 7 to pay debts, Chapter 13 will help you keep most of your assets. A skilled bankruptcy lawyer can help you manage the following types of debt through bankruptcy:
- Home Mortgage – If your house is in foreclosure, you may seek bankruptcy to avoid legal action. Chapter 7 vs. Chapter 13 will determine how that debt is handled through the court.
- Car Loans – Repossession can be embarrassing. Bankruptcy will stop legal action and help you keep your vehicles.
- Tax Debt – Although some tax debt is not dischargeable through bankruptcy, you may be able to establish a payment arrangement through Chapter 7 vs. Chapter 13.
- Student Loan Debt – The average college student graduates school with thousands of dollars in debt. Bankruptcy can help you manage exorbitant monthly payments.
- Lawsuits – Creditors may file a lawsuit against you in court; however, bankruptcy will stop this type of legal action and garnishments as well. Chapter 7 vs. Chapter 13 will determine how these debts are handled.
Discharging Debt Through Chapter 7 vs. Chapter 13
Your goal with a bankruptcy is likely to eliminate debt. This is often called “discharging debt” through a bankruptcy. However, debt is discharged differently when dealing with a Chapter 7 vs. Chapter 13.
In a Chapter 7 bankruptcy, much of your debt may be discharged at the conclusion of the case. Anything that is unsecured debt and not considered nondischargeable may be done away with completely.
With Chapter 13, you may have to pay back some of those same debts. Your unsecured, dischargeable debts will be included in your three to five year payment plan, and you will make payments on them along with everything else. If you do not fully repay your dischargeable debts, they may be discharged through Chapter 13 as well.
Property in Bankruptcy
When deciding between Chapter 7 vs. Chapter 13, you should consider what might happen to your property. With Chapter 7 bankruptcy, your bankruptcy trustee can sell any property that is nonexempt in order to pay your creditors. You may have to “liquidate” your property. However, in Chapter 13 you are generally able to keep most of your property. Your debts will be combined into a three to five year payment plan and creditors will be paid in that manner. Although your creditors may get lower payments, they generally let you keep your property.
If you want to keep your property, you may be able to make an arrangement with your creditor. When you file bankruptcy, creditors are often more likely to work out payment plans and lower fees and principal amounts.
Lien Stripping With Chapter 7 and Chapter 13
One of the biggest benefits of Chapter 13 is that your junior liens, or the secondary liens on your property, may be stripped and done away with through the process of Chapter 13. However, Chapter 7 does not have this function. If you want to get rid of junior liens on your home or other property, then Chapter 13 may be right for you. Otherwise, you may lose the property in Chapter 7.
Are There Cons to Filing Bankruptcy?
All bankruptcy has negative aspects. In addition to harming your credit, it can impact other areas of your life. However, it can also benefit you in many ways. You should carefully weigh the costs and benefits of bankruptcy before making a decision to file.
With Chapter 7 bankruptcy, a trustee can sell your nonexempt property and there is no way to catch up on missed payments in order to avoid foreclosure and repossession. Instead, you may lose your nonexempt property in order to repay debts.
With Chapter 13, you must make monthly payments to a bankruptcy trustee for up to five years. You may have to repay a significant portion of your debt and it can take a long period of time. Fewer debts are discharged than with Chapter 7.
Deciding Between Chapter 7 vs. Chapter 13
When determining which type of bankruptcy is right for you, it can help to have a legal adviser who has knowledge about Chapter 7 vs. Chapter 13 bankruptcies. You should evaluate your debt, income, assets, and long-term goals.
If you meet the means test and qualify for Chapter 7, we can walk you through the process of liquidating your assets and eliminating the majority of your debt. However, if your income is too high to qualify for Chapter 7, we can help you with Chapter 13. We will talk to your creditors for you and figure out a way that you can keep your property while establishing payments that are manageable for you.
Contact a Charlotte Bankruptcy Lawyer Today
A skilled bankruptcy lawyer can help you make the decision between Chapter 7 vs. Chapter 13. Call Law Office of Jack G. Lezman today at 704-544-8202 for help.