Bankruptcy: Chapter 7 vs. 13

In the event of financial hardship, it may be necessary to file for bankruptcy. But which type of bankruptcy is better? Chapter 13 or Chapter 7? To answer this question, you need to first understand the basics of each chapter.

Both have their advantages and disadvantages but comparing them assists you in picking which is great for you.

Bankruptcy Chapters 7 & 13 – Awareness 

Things to consider when deciding between Chapter 13 and Chapter 7 include your income, assets, creditors, expenses, and whether you can pass the means test. You should contact a qualified Santa Rosa bankruptcy attorney for legal advice.

The US Bankruptcy Code governs both chapter 7 and chapter 13 bankruptcy. However, there are strong distinctions between the two.

Chapter 7 (Liquidation)

The bankruptcy court issues a discharge to Chapter 7 bankruptcy petitioners in 3 to 4 months. Once your petition is filed, creditors cannot contact you.

Though bankruptcy law requires you to sell certain assets to pay unsecured creditors, most Americans can retain all their property because bankruptcy prohibitions limit the types of property that can be used to satisfy debts.

In Bankruptcy Chapter 7, you can have unlimited credit; however, you cannot earn massive profits. That’s one of the main differences between Chapter 7 and Bankruptcy Chapter 13.

Chapter 13 (Reorganization)

A Chapter 13 repayment plan is required. Although creditors can contest the Chapter 13 plan’s payout, they are bound by it if the bankruptcy court approves it.

Your monthly payment is determined by your budget. Unlike Chapter 7 bankruptcy, Chapter 13 allows you to reduce your auto loan’s interest rate and, in some cases, the total amount owed.

Chapter 13 filers are not required to give up non-exempt property because creditors get paid. Unpaid debt is discharged in a Chapter 13 bankruptcy when a 3 – 5 year repayment plan is implemented.

Pros and Cons of Bankruptcy Chapter 13 and Chapter 7

Bankruptcy Chapter 13 is better when: 

1. You must pay back your mortgage interest.
2. You owe money you can’t pay.
3. You also have a high-interest car loan or a negative equity trade-in.
4. You have many loans.
5. A property settlement owes you money.

Chapter 7 is better when:

1. You owe money on unsecured debts like credit cards, medical bills, repossession liabilities, and personal loans.
2. You don’t have money enough to pay for basic necessities like housing and food.
3. You can’t afford a bankruptcy attorney to help you with your case.
4. You don’t have non-dischargeable debts like alimony or child support or are current on them.
5. For at least three years, no settlement plans.

Which bankruptcy is best for me? Is Chapter 7 or 13 Better?

Based on your situation, here are some examples:

Employed Homeowners Experiencing Foreclosure or Mortgage Delinquency

To “cure” late mortgage payments, homeowners who file Chapter 13 bankruptcy can pay back some of the debt while keeping some payables.

Filers can avoid foreclosure and possibly eliminate second and third mortgages or home equity lines of credit. The inability of delinquent homeowners to reclaim property defaults makes Chapter 7 bankruptcy useless.

Unemployed Debtors with Little Assets – Possible Chapter 7

Frequently, Chapter 7 bankruptcy is the fastest way to pay off debt. This is the most common type of bankruptcy, also known as “no asset” bankruptcy.

Unemployed Homeowners with Significant Property – Possible Chapter 7

Bankruptcy Chapter 7 is not always the perfect idea for homeowners with significant equity in their homes. The home may be protected if the state exempts a large portion of the equity.

It is possible to lose your home if the state mortgage exemption does not cover the equity in the property.

Due to the requirement that the homeowner maintains enough income to cover the costs of a repayment plan, unemployed homeowners are unlikely to qualify. You get a new start with either bankruptcy.

Which Bankruptcy Chapter Do You Really Need?

Chapter 7 bankruptcy is the least traumatic type of insolvency. You file it with the court, and the court will discharge your debts.

Chapter 13 bankruptcy, on the other hand, is a little more complicated. You file it, and the court establishes a schedule of payments to your creditors.

Seek Advice From A Santa Rosa Chapter 7 Bankruptcy Lawyer

Finally, deciding whether to file for Bankruptcy Chapter 7 or Chapter 13 bankruptcy is a difficult decision. To discern which option is most suitable for you, consult with a competent Embolden Law PC lawyer who is familiar with the distinctions between the various types of bankruptcy.

Our bankruptcy attorneys in Santa Rosa Family lawyers help clients with diverse backgrounds to overcome financial hardships while discharging their debts.

Call Embolden Law PC at 707-284-2378 or send us a message to schedule a consultation.

Only an experienced bankruptcy lawyer will inform you for certain which option is excellent for your particular situation!