Chapter 7 vs. Chapter 13

Which Chapter is Right for You?

Bankruptcy can provide much needed relief for those who are struggling with overwhelming debt. Many people, however, are unsure which Chapter is right for their situation. Understanding the differences between Chapter 7 and Chapter 13 is the first step in determining which type of bankruptcy is the right option for your unique circumstances.

Chapter 7 Bankruptcy
With this Chapter the debtor is able to discharge most of their unsecured debts after repaying their creditors through the liquidation of nonexempt assets. Because Chapter 7 bankruptcy releases debtors from most of their debts, you must be able to meet the eligibility requirements of the means test before you can file. If you are eligible, the court will assign a bankruptcy trustee to your case who will gather your nonexempt assets. The trustee will then liquidate these assets to repay your creditors, and once this is complete you will be released from the balances of most of your remaining unsecured debts.

Benefits of Chapter 7 include:

  • Most unsecured debts are discharged
  • Process is typically completed between 6 months and 1 year
  • There are no monthly payments to keep up with
  • Future earnings are not included in the filing

Chapter 13 Bankruptcy
Chapter 13 uses the reorganization of debt to help debtors repay their creditors, and it is a great option for those who cannot pass the means test. The court will appoint a bankruptcy trustee to your case who will work with you to create a repayment plan, which will likely last between 3 and 5 years. Chapter 13 provides you with more time to pay off your debts, and you will only have to make a single, affordable payment each month towards your debts. After you have completed your repayment plan you will be released from the remaining balances of most of your unsecured debts.

Benefits of Chapter 13 include:

  • No risk of losing assets to liquidation
  • Protection from foreclosure
  • Less impact on your credit score
  • More time to repay your debts

Questions to Ask Yourself

Either Chapter of bankruptcy could help you find relief from your debts, so it is important to determine what you main goals are. Ask yourself the following questions:

  • What types of debts do I have? It is very important to determine whether the majority of your debts are eligible to be discharged. While most unsecured debts can be eliminated, certain types do not qualify, including student loans, child support payments, and taxes owed to the government. If you mainly owe on debts that do not qualify for elimination, Chapter 13 could be the best option for you, because it will give you more time to repay your creditors.
  • How soon do I hope to be done with the bankruptcy process? If you want to be free of your debts as soon as possible, regardless of the potential loss of assets and impact upon your credit score, then Chapter 7 could be the right choice. If you prefer to protect your assets and credit score and would like more time to repay your debts, then Chapter 13 could be a good fit for you.
  • Am I willing to risk losing assets to liquidation? By filing for Chapter 7 bankruptcy, you could lose some of your nonexempt assets during the liquidation process. If it is important that you protect your assets and properties, Chapter 13 may be the better choice.
  • Am I comfortable with filing for bankruptcy? After considering your options, if you would still like to avoid filing for bankruptcy, then it is best to wait. An attorney can help you explore bankruptcy alternatives and determine whether one of these options could work for you.

Get Help from a Rancho Cucamonga Bankruptcy Lawyer

Atlantis Law, LLP is dedicated to providing clients with the caring legal counsel they need to handle their debts. The firm can evaluate your specific circumstances and help you understand which Chapter of bankruptcy will be most effective in helping you achieve your financial goals. Contact the firm today or fill out a free case evaluation to learn more about your options to obtain a fresh start for your finances.

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