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Chapter 7 vs. Chapter 13

Most experienced attorneys can prepare a simple Chapter 7 bankruptcy, but few can prepare a Chapter 13 proceeding—which is often far more beneficial. While a Chapter 7 bankruptcy may result in the loss of your home, business, or other assets, a Chapter 13 bankruptcy an allow you to keep control of your estate while also eliminating large amounts of your debt and any secondary mortgages you may have.

Our attorneys are experienced in the process of preparing and filing Chapter 13 bankruptcies, and we will work with you to determine which type of bankruptcy best suits your financial circumstances and goals. Misfiling for a Chapter 7 bankruptcy can put your assets and your financial future at risk, so please call us to discuss your options at 1-800-425-4357 before you make this important decision.

What are the differences between Chapter 7 and 13 bankruptcy?

Chapter 7 bankruptcy is used for eliminating unsecured credit card debt or real estate debt. Certain taxes, medical bills, lawsuits, judgments, and repossessions can also be eliminated. However, to qualify for a Chapter 7 bankruptcy, you must pass the means test, and your assets may be liquidated under the conditions of the debt discharge.

Chapter 13 is the more sophisticated proceeding, which allows you to repay what you can afford regardless of how much you owe. Many Chapter 13 bankruptcies result in the elimination of more debt than under Chapter 7, and a Chapter 13 bankruptcy can be used to save your properties by eliminating second mortgages through lien stripping and restructuring of your first mortgage debt.

Through Chapter 13 bankruptcy, you will have up to five years to repay your debts, and it isn’t uncommon for debts to be entirely eliminated through this type of bankruptcy. Chapter 13 bankruptcies are also used to stop interest and penalties on tax obligations, with up to five years to repay those taxes that cannot be eliminated. Vehicles can also be repaid through lower payments at 5% interest.

To learn more about how a Chapter 13 bankruptcy may help you save your home and eliminate other debts, please contact us to schedule a free consultation.

Below is a comparison chart of Chapter 7 and Chapter 13 bankruptcies:

Chapter 7: Liquidation

Obtain mandatory credit counselling and file a petition for bankruptcy with the court. A trustee will be appointed to your case, and your assets will be liquidated and redistributed among your creditors.

You must pass the means test to qualify for this type of bankruptcy. You will not be able to file another Chapter 7 bankruptcy for eight years.

Most debts are discharged at the completion of the bankruptcy. To keep your home, you must keep up with your mortgage payments or otherwise qualify for exemption. Your car and other assets may also be surrendered under the conditions of the bankruptcy.

A Chapter 7 bankruptcy will remain on your credit report for ten years.

Chapter 13: Repayment

Obtain mandatory credit counselling and file a debt repayment plan with the court. Payments will be made to the court from your disposable income for three to five years. You will retain your assets under this type of bankruptcy.

You qualify for a Chapter 13 bankruptcy if you owe less than $307,675 in unsecured debt and less than $922,975 in secured debt. You will not be able to file if you were granted a Chapter 7, 11, or 12 bankruptcy in the past four years or a previous Chapter 13 discharge within the past two.

Debts will be repaid over the course of the payment plan, with any remaining debt discharged at the completion of the bankruptcy. You will keep your home and other assets as long as you complete the court-approved payment plan within the specified time.

A Chapter 13 bankruptcy may remain on your credit report for up to ten years, though some creditors will only report it for seven.