How Are Chapter 7 And Chapter 13 Bankruptcy Different?
If you are contemplating bankruptcy, you may be seeking relief from the nonstop calls from debt collectors or the humiliation of wage garnishment. A bankruptcy discharge can end those and other difficulties, and help you turn the page to a new, brighter financial future.
Individuals and married couples have two options when they file for bankruptcy. They may seek protection under Chapter 7 of the U.S. Bankruptcy Code, or Chapter 13. While both can open the door to financial relief, they are different in many ways. You may be required to sell nonexempt assets if you file for a Chapter 7 bankruptcy, which is also known as a “liquidation” bankruptcy.
If you have nonexempt assets that you wish to retain, Chapter 13 may be a better option for you. A skilled bankruptcy attorney can assess your financial situation and guide you to the option that is best for you, given your goals and concerns.
Richard Banks & Associates, P.C., is led by a board-certified bankruptcy specialist who has served clients throughout Tennessee and northern Georgia for more than 50 years. Our attorneys concentrate on aiding clients facing bankruptcy or other debt situations, so you receive focused, informed and comprehensive legal support.
3 Ways Chapter 7 And Chapter 13 Are Different
Chapter 7 and Chapter 13 bankruptcies differ from each other in three significant ways.
Your Income Level Determines Which Chapter You May Select
Before you file for bankruptcy, you will take a means test to compare your income with the median income level in your state. If your income is at or below the designated level for your state, you can file for Chapter 7. If it is above this designated level, you will be ineligible to file under Chapter 7, but you may file under Chapter 13. You will need to have a reliable source of income to file Chapter 13 bankruptcy, which is sometimes called “the wage earner’s bankruptcy.”
Debt Repayment Methods Vary Between The Chapters
Both Chapter 7 and Chapter 13 provide an avenue for creditors to recoup some of the debt you owe to them. In Chapter 7, “liquidation” means that your non-exempt assets will be sold on the open market, and the proceeds will be used to pay back your lenders.
Chapter 13 bankruptcy allows debtors to retain assets such as their home and their cars. In return, you agree to a restructured payment plan, which you will pay over a period of months. Your creditors may agree to lower your payments or extend the life of the loan to ensure you are able to hold on to your assets and continue making payments on them.
Credit Reporting Of Your Bankruptcy Is Different For Chapter 7 And Chapter 13
While it’s true that bankruptcy appears on your credit report for a substantial amount of time, it doesn’t stay there forever. A Chapter 7 bankruptcy typically remains on a credit report for 10 years. If you seek debt relief through the Chapter 13 program, the filing usually remains on your credit report for seven years.
Which Bankruptcy Chapter Is Right For Your Future?
Chapter 7 bankruptcy is the most popular option for consumer bankruptcy. It can be completed in a matter of months. Additionally, exemptions exist for the list of assets to be liquidated, and many debtors can keep a significant portion of their assets. If you meet the means testing requirement for Chapter 7 bankruptcy, it can be a beneficial option if you have a lot of unsecured debt, such as a credit card or medical debt.
On the other hand, if you do not qualify for Chapter 7 bankruptcy, Chapter 13 can offer the benefits of paying a set amount each month to pay off your debts. Chapter 13 can be an excellent choice for those who have a steady source of monthly income and who want to retain debt-secured physical assets like a home or a vehicle. Payoff periods for Chapter 13 are usually three to five years.
Regardless of the type of bankruptcy protection you seek, you will enjoy the benefit of the automatic stay upon filing. This protects you from further debt collection efforts against you, stopping contact with debt collectors and halting any efforts to secure payments.
Contact Us For A Free Bankruptcy Consultation
At Richard Banks & Associates, P.C., our attorneys can deliver fast action during your financial crisis. We can start your case with no money down, and offer payment plans for our legal services. To schedule an appointment, call our office in Cleveland, Tennessee, at 866-596-8527 or send us an online message.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
