Clark & Washington

Chapter 7 & Chapter 13 Bankruptcy: What are the Differences?

If you are struggling to pay your bills, overwhelmed by debt or completely stressed out by your finances, then bankruptcy may be the right solution. This process is designed to allow you to eliminate your debts or to arrange to pay them back in a more reasonable matter. Once you begin the process, you’ll also get relief from collections efforts; if you’ve been coping with debt collectors, filing bankruptcy will stop the phone calls and letters. There are two types of bankruptcy and an attorney can help you determine which option is the best solution for your situation.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy can discharge many of your debts (credit cards, loans and other obligations); student loans, home mortgages, automobile loans, child support and tax oblications are not included. There is a means test for Chapter 7; this form is reserved for those who meet specific income guidelines. This is the most common form of consumer bankruptcy; according to the American Bar Association, about 71% of the bankruptcy filings each year are Chapter 7. You can only file Chapter 7 once every eight years and may have to surrender some assets to repay your debts; this process may be best for you if you have many unsecured debts and want a fresh start fast.

Chapter 13 Bankruptcy

This form of bankruptcy takes longer but allows you retain more of your property; Chapter 13 is used by those wishing to reorganize their debts and who can pay back at least some of the money via a reasonable repayment plan. If you do not meet the means test for Chapter 7, you’ll have to file for Chapter 13. If you have missed mortgage payments and wish to retain your home, then Chapter 13 may be the best option for you. You’ll be able to keep all of your property with this form, in exchange for paying back some or all of your debts. If you are behind on your mortgage or a car loan (or both), this option can help you catch up and keep these assets. Chapter 13 is a longer process than Chapter 7 and may be the right choice if you wish to retain your family home or other important assets.

The right form of bankruptcy for you will depend on your available assets and what you owe to creditors. Contact us to get a more detailed idea of what to expect from the process and to learn which form of bankruptcy is best for your particular situation.

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