How to Choose Between a Chapter 7 and a Chapter 13 Bankruptcy?

Answer 1

There are two types of bankruptcies that individual consumers file; Chapter 7 and Chapter 13. Chapter 7 involves liquidation of assets and completely discharging a person’s debts and thus freeing them of the obligation to pay. Chapter 13 is a little bit more complicated.

In a Chapter 7 bankruptcy, credit cards and other dischargeable debt is wiped clean and allows the debtor an opportunity to start over with no debt. The debts still remain on the credit report, but the debtor no longer owes any of the balances. In a Chapter 7, you are usually able to keep your car and house and other assets that are necessary in everyday living. Sometimes you are able to reaffirm these debts for lower and more affordable monthly payments and lower interest rates. The biggest difference between the two chapters is that the Chapter 7 is discharged within a matter of months, while the Chapter 13 could continue for 3 to 5 years.

Chapter 13 bankruptcy is different from a Chapter 7 bankruptcy primarily because debt isn’t wiped clean. Chapter 13 is also referred to as a reorganization plan or an individual reorganization and is filed by debtors that have steady incomes and may not qualify to file a Chapter 7 bankruptcy. If the debtor has valuable assets that cannot be exempted, they may choose Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the debts are combined and payments are made to a trustee for a period of time of 3 or 5 years. The payments that are made and the length is determined by the income and the amount of debt. After all payments are made to the trustee for the designated period of time, the debtor receives a discharge of debt.

For both Chapter 7 and Chapter 13 bankruptcies, the debtor will have to go through a series of checks to make sure they qualify for these forms of debt relief. Most debtors qualify for one or the other, but should meet with an attorney if you are not certain as to which chapter you should file.