Filing for bankruptcy is never an easy decision. Yet, it is often the only way out for people struggling with unmanageable debt. Although various forms of bankruptcy exist, Chapter 7 and Chapter 13 are the prevailing types. Both offer effective remedies to financial difficulties, yet they differ significantly.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, or liquidation bankruptcy, is the prevailing form of bankruptcy. Typically pursued by individuals burdened with substantial debt and limited assets, this legal recourse enables them to address their financial obligations that have become unmanageable. In this process, debtors are required to hand over their non-exempt assets, which will be sold to repay outstanding debts. However, the debtor’s secured debts, such as a mortgage or car loans, are not typically affected by Chapter 7 bankruptcy. Chapter 7 takes an average of a few months to complete and can stay on a credit report for many years.
Chapter 13 Bankruptcy
Individuals with regular income who cannot repay their debts can generally file under Chapter 13. It allows debtors to keep their property and pay back their debts using an extended repayment plan, usually over the course of a few years. Under Chapter 13, the debtor creates a repayment plan and seeks approval from the court. Once approved, the debtor pays the amount agreed upon in the plan to a court-appointed trustee who, in turn, distributes it among the creditors.
Differences Between Chapter 7 and Chapter 13
Chapter 7 and Chapter 13 bankruptcy have different durations. Chapter 7 can be a much quicker and more straightforward process. However, Chapter 13 can last for many years.
Chapter 7 bankruptcy is available exclusively to individuals without disposable income, whereas Chapter 13 necessitates a steady income source for the debtor.
Chapter 13 gives you a chance to retain ownership of assets, while Chapter 7 requires the sale of all non-exempt assets to pay off creditors.
Determining the best option for your financial situation requires careful consideration of your financial resources and goals. You may have to sell property to pay your debts under Chapter 7, but under Chapter 13, you may be able to keep your assets and arrange for a manageable payment plan. Therefore, the decision between Chapter 7 and Chapter 13 should be based on your unique financial situation. Remember, filing for bankruptcy is not the end of the road but rather a fresh start in rebuilding your financial life.
For more information, contact a bankruptcy attorney in your area.
