Why chapter 7 vs 13

For instance, too much income might preclude you from filing a simple Chapter 7 case. Or, if you have property you'd lose in Chapter 7 that you'd like to keep, you can protect it in Chapter In Chapter 7 bankruptcy, the bankruptcy trustee has the power to sell your nonexempt property to pay back your creditors.

As a result, Chapter 7 might be costly if you own a lot of assets. By contrast, Chapter 13 bankruptcy allows you to keep all of your property in exchange for paying back a portion or all of your debts through your repayment plan. Further, if certain conditions are satisfied, Chapter 13 bankruptcy offers debtors additional benefits that aren't available in Chapter 7 such as the ability to:.

In cases like this, a Chapter 7 bankruptcy is the fastest, easiest, and most effective means of getting rid of debt. As a matter of fact, this is the most common bankruptcy case, often called a "no asset" bankruptcy. If a homeowner has a significant amount of equity in property, then Chapter 7 may or may not be the best option. If the homeowner's state exempts a generous amount of home equity, then the home may be safe. But if the state homestead exemption doesn't cover the equity, the homeowner may lose the home in a Chapter 7 bankruptcy.

Because the homeowner will only be able to keep the home in Chapter 13 bankruptcy if he or she has enough income to fund a repayment plan, it's unlikely Chapter 13 will be available to an unemployed homeowner. For homeowners who have fallen behind on mortgage payments, Chapter 13 offers a way to catch up or "cure" past due mortgage payments while simultaneously eliminating some portion of dischargeable debt.

Filers can save the home from foreclosure and get rid of a lot of credit card debt, medical debt, and possibly even second and third mortgages or HELOCs. Chapter 7 bankruptcy does not provide a way for homeowners to make up mortgage arrears, so it's not a good choice for delinquent homeowners who want to keep a home.

Very wealthy debtors often need to file under Chapter 11 due to the debt and income limits of Chapter 7 and Chapter 13 bankruptcies. To qualify for Chapter 7 bankruptcy, you must pass the means test.

The means test looks at your average monthly income for the six months preceding your filing date and compares it against the median income for a similar household in your state.

If your income is below the state median, you automatically pass and do not have to fill out the entire form. If it is above median, you must complete the rest of the form and take into account certain expenses to determine if your disposable income is low enough to file for Chapter 7 bankruptcy. In Chapter 13 bankruptcy, you propose a repayment plan to pay back some or all of your debts over a three to five-year period.

As a result, you must have sufficient income to afford your plan payments each month. If you are married, you can choose to file for bankruptcy jointly with your spouse or individually. In general, filing for bankruptcy together makes sense if you have a lot of joint debts and your state allows you to double your bankruptcy exemptions in a joint filing. This article is intended to give a brief overview of the options in bankruptcy.

It doesn't cover all the issues you might encounter or discuss any particular issue in depth. Before proceeding with bankruptcy, the best practice is to review your particular case with a knowledgeable bankruptcy attorney. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.

Under Chapter 13, you need to continue making payments on those balances throughout your court-instructed repayment plan; afterwards, the unsecured debts may be discharged.

However, certain debts might not be wiped out by either Chapter 7 or Chapter 13 bankruptcy, including:. Some of those secured loans may be reduced with Chapter 13 bankruptcy to make repayment easier with a "cramdown," in which your court-approved repayment plan decreases the balance you owe. For instance, you could secure a reduced balance on your car loan based on the vehicle's depreciated value.

With Chapter 7, there's a potential to discharge secured debt like car loans, if you give up the property involved in this case, the car.

Your credit may not be in tip-top shape by the time you consider filing for bankruptcy, since high balances and missed payments are the top factors affecting your credit score. Still, the presence of a bankruptcy on your credit report will severely impact your credit scores and creditworthiness the entire time it is on your report.

That impact will lessen as time passes, however. Chapter 7 bankruptcy remains on your report for up to 10 years, and Chapter 13 stays there for up to seven years.

It's not an ideal credit situation, of course, but you can use the time to manage your debts wisely and make consistent on-time payments. Like with any damage to your creditworthiness, it's possible to rebuild your credit with some focus and patience—along with using the debt relief provided by the bankruptcy to get back on track financially. How Do I Apply for Bankruptcy? The unfortunate reality of bankruptcy is that it will cost some money—more if you hire legal help, which you probably should more on that below.

All filings have to go through U. However, you can ask the court to either waive your fee or let you pay with monthly installments. You'll also have to take debtor education courses if you file on your own.

And that's just the beginning. There's a list of documents you'll need to take care of, as well as the specific repayment proposal you need to submit for Chapter That proposal gets reviewed by a court-appointed trustee, who contacts your creditors before approving your submission. Overall, neither filing is an easy process to handle on your own, and even minor mistakes on your end could be a setback for your case. So, whether you file for Chapter 7 or Chapter 13 bankruptcy, it's typically a good idea to hire a lawyer to help you petition.

A bankruptcy attorney's price depends on the nature and complexity of your filing, with Chapter 13 filings on the pricier end, but the price tag doesn't necessarily mean a lawyer is out of the question for you. Discuss payment plans with potential attorneys, check out local pro-bono free lawyers and legal aid offices , or use an online tool like Upsolve to cover your bases when it comes to bankruptcy.

The Bottom Line Bankruptcy can sound scary, but it might be a necessary step to realign your finances and move forward without debt piling ever higher upon you. No matter what, reach out for help with professional advice and stay informed on your rights and options—your situation is never hopeless. Before and after you file bankruptcy, it's important to keep a close eye on your credit.

Experian's free credit monitoring can alert you to score changes, including improvements that might come in the future once your bankruptcy is in the rear-view mirror. The purpose of this question submission tool is to provide general education on credit reporting.

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Chapter 7 bankruptcy, also known as a liquidation, is a legal option that can help you clear some or all of your debt. But it will also mean having to surrender assets, like property or cash, to do so. Chapter 13 bankruptcy is also a legal option that can help you get some debt discharged, but allows you to keep your property and repay your debt by completing a three- to five-year repayment plan.

But before filing either type of bankruptcy, consider the type of debt you owe. Neither option lets you discharge the following:. Chapter 7 is an option to consider if you have little to no disposable income. That means the money you were paying toward that loan or credit card, for example, can now be used for other things, like household necessities.

Note that there are a number of exceptions to the debts that can be discharged in Chapter 7, so we recommend contacting a bankruptcy lawyer before you file. When you file, some of your creditors may be temporarily restricted from …. Where Chapter 13 bankruptcy typically takes three to five years to complete, Chapter 7 generally takes about 90 to days from start to finish, in addition to the time it takes to complete a credit counseling course prior to filing.

One of the main consequences of filing Chapter 7 is the possible loss of your assets. Depending on the laws in your state, and whether you have equity in certain assets, your cash or property will be at stake.