Bankruptcy Chapter 7 vs Chapter 13

A lot of people don’t know what Chapter 7 and Chapter 13 bankruptcy is. They think there is one bankruptcy, and their knowledge represents the extent of their bankruptcy knowledge.

They think that because they successfully filed Chapter 7, for example, it’s always faster or cheaper to file and that no other option is even available.

The correct chapter for your case is not so straightforward. Each chapter has benefits and its pitfalls. It’s best to understand all the legalities concerning each chapter before choosing one that applies to your specific situation.

This article will focus on comparing two types of debt repayment plans: chapter 13 v. chapter 7 bankruptcy. Following the conclusion of this article, you will have a better understanding of Chapters 7 vs 13. Otherwise,  you can always talk to our competent bankruptcy lawyers in Royal Oak.

 

Chapter 7 Vs Chapter 13 – what are the key differences?

Chapter 7 bankruptcy under the United States Bankruptcy Code is a type of bankruptcy available to individuals with severely limited income. 

If you file for Chapter 7 bankruptcy (like credit cards, payday loans, and medical bills).

The following types of property may be liquidated about Chapter 7:

  • Cash
  • Bank accounts
  • Stocks
  • Collections of high value
  • Another residence
  • A second vehicle 

Chapter 13 bankruptcy is typically the best option for individuals with stable incomes who can afford to make regular payments. Furthermore, if your income is too high to qualify for Chapter 7 bankruptcy, your only option is Chapter 13.

The United States Bankruptcy Code’s Chapter 13 rebuilds your debt (and may even eliminate some of it) to make payments that are more controllable. 

You do not have to liquidate or lose any of your assets under Chapter 13 bankruptcy because you can arrange regular payments to maintain them. You must propose a repayment plan to repay all or some of your debts over three to five years. 

However, before filing either kind of bankruptcy, you should consider the nature of your debt. 

Neither of these alternatives allows you to discharge the following:

 

Chapter 7 bankruptcy – Who can file this?

Under the current bankruptcy laws, most people can file a Chapter 7 Bankruptcy.

This includes individuals and sole proprietors. Corporations, partnerships, and limited liability companies may also file for Chapter 7 bankruptcy provided they meet the qualifications to do so. Estates of deceased persons are not eligible for Chapter 7 bankruptcy.

  • Corporations eligible for Chapter 7 bankruptcy must not have had an involuntary petition filed against them within the last 180 days. 
  • Limited liability companies that are eligible must have fewer than 100 members and cannot have had an involuntary petition filed against them within the last 120 days. 
  • Partnerships eligible for Chapter 7 bankruptcy must not have more than 100 partners and cannot have had an involuntary petition filed against them within the last 180 days.

To be eligible for Chapter 7 bankruptcy, you must pass a means test demonstrating that your income is less than the state-mandated minimum.

You may be wondering Can the Court Deny You a Chapter 7 Filing? 

 

Chapter 13 bankruptcy – Who can file this?

If you consider filing for Chapter 13 bankruptcy, the most important thing to know is that not everyone is eligible. Chapter 13 bankruptcy is created for individuals who have a regular source of income and assets to protect, such as a job and a house. If you don’t own a home, you can’t file for Chapter 13 bankruptcy.

Chapter 13 bankruptcy is a way to reorganize your debts, not a way to get rid of them. In most cases, you have to pass a “means test” to confirm that you cannot pay your bills. If you pass the means test, you have to file paperwork with the court and wait for a discharge hearing, usually about four months later.

 

What are some of the gains of chapter 7 bankruptcy?

  1. You Are Given a “Fresh Start.”

Chapter 7 bankruptcy is intended to provide you with a fresh start. When certain debts are discharged, you are released from personal liability for the discharged debt.

 

  1. You Will Retain Future Earnings

In general, property acquired or to be acquired following a Chapter 7 bankruptcy filing is excluded from the bankruptcy estate.

 

  1. There Are No Quantity Limits on Debt You Can Carry

In contrast to Chapter 13 bankruptcy, Chapter 7 bankruptcy rules do not limit the amount of debt that can be discharged.

 

  1. There Will Be No Debt Repayment Plan

Unlike Chapter 13, Chapter 7 bankruptcy does not require you to repay the debt through a court-approved repayment plan. After the debt is discharged in Chapter 7, you are no longer responsible for repaying it.

 

  1. Debt Discharge Is Prompt

In most cases, debt discharge occurs within three months. The court will issue a discharge order 60-90 days after your bankruptcy filing.

The bankruptcy court will close the case once the trustee distributes your property to unsecured creditors.

 

What are some gains of chapter 13 bankruptcy?

  1. Allowing a debtor to sustain his or her property and assets, such as a house, automobile, or furniture
  2. Offering you the freedom and flexibility to create your repayment plan includes determining the length of time you have to pay off your debts and the amount of each payment.
  3. An automatic restraining order against creditors calling or writing to a debtor.
  4. Less detrimental to an individual’s credit score

 

Takeaway: Seek help from a reputable lawyer if you’re not sure if you should file chapter 13 or chapter 7

 

So which should you choose? Chapter 7 or 13? There are many factors to consider. If you’re seeking a piece of advice on how to make your choices, hire a Royal Oak, Michigan bankruptcy attorney today for a free legal consultation.

While you can easily find online ebooks and other resources on this topic, an experienced attorney can look at your situation and give personal attention and advice.  Call us today at 248-609-6103 or fill up our form to schedule an appointment with our reliable bankruptcy attorneys.