Are you looking into bankruptcy, but feeling a bit confused about the differences between Chapter 7 and Chapter 13? Here is what you need to know about these two forms of bankruptcy.
The main thing to be aware of is who is eligible for each form of bankruptcy. Chapter 13 bankruptcy is for individuals seeking relief from debts. Whereas, Chapter 7 can be for both individuals and businesses who are seeking help.
How Are Debts Repaid?
Chapter 13 bankruptcy will only reorganize your debts, not remove them entirely. You'll essentially consolidate all eligible debts into a repayment plan that will be paid over several years. It helps prevent the need to work with multiple creditors by simplifying the debt repayment process. Chapter 7 involves liquidating assets to pay for those debts, and then discharging the rest of the debt.
When Is Each Form Of Bankruptcy Best?
Many people use Chapter 13 bankruptcy when they have a home that they want to keep, and when they have disposable income after all their monthly expenses. They are capable of paying back the debts, but may just need a bit of help organizing it all. Chapter 7 is ideal for people that don't have a home or other large assets, and have unsecured debts that can be discharged, like credit card debt.
Which Debts Are Discharged?
Very few debts are discharged in Chapter 13, since the repayment plan is key to having a lower impact on your credit. Chapter 7 gives you more flexibility with those unsecured debts. Some debts you won't be able to discharge are tax debts, student loans, or missed payments related to alimony or child support.
How Are You Eligible For Bankruptcy?
Since Chapter 13 bankruptcy involves repaying debts under a repayment plan, you will need to have additional income beyond your monthly obligations. If not, there will be no way to qualify for Chapter 13 bankruptcy. Chapter 7 requires means testing and that you make less than the median income in your state.
How Long Does Bankruptcy Take?
Repaying debts under Chapter 13 bankruptcy can take several years until your repayment plan has been completely paid off. Meanwhile, Chapter 7 bankruptcy may only take a few months until you have your fresh financial start. This can help you get back on your feet from crippling debt relatively fast, especially if you are looking to move onto the next stage of your financial life.
Contact a company like C. Taylor Crockett, P.C. for information on which option would work best for you.