Bankruptcy Law 101: Chapter 7 vs Chapter 13
Spending time learning the differences between Chapter 7 bankruptcy and Chapter 13 is an important step if you want to file for bankruptcy. Bankruptcy offers a way to restructure or eliminate debts you have, but one branch is typically better than the other. The branch that is better for you depends on your situation. Here are the key differences you should know about.
Income Qualification Requirements
The first thing to understand about Chapter 7 and Chapter 13 is that you must complete a means test to find out if you qualify for Chapter 7. This test compares your income to the average income in the state where you reside. You qualify for Chapter 7 if your income is less than this amount. If you qualify for Chapter 7, you can file for either branch. If you do not qualify after completing the means test, you can only use Chapter 13 and not Chapter 7.
You should have a lawyer help you choose which type to file if you qualify for either type because one type is always better than the other depending on the situation.
Time Frame
The second difference between these two branches involves the time frame, and this is a huge difference between Chapter 7 and Chapter 13. Chapter 7 cases occur quickly. In many cases, you can file for Chapter 7 and receive a discharge in just four or five months. When you receive a discharge, the case closes.
In Chapter 13, your case will take between three to five years. As you can see, this is a lot longer than the time frame required in Chapter 7 cases, but this occurs due to the way each branch handles and treats the debts a person owes.
Handling of Debts
The biggest difference of all between Chapter 7 and Chapter 13 is the way each branch handles the debts a person owes. Chapter 7 is the branch many people prefer to use, if possible because it eliminates debts without the filer repaying them. This is called debt forgiveness, and it works in Chapter 7 for qualifying debts. Here are some examples of qualifying debts:
- Credit card bills
- Medical bills
- Personal loans
- Payday loans
If you owe money for debts like these and qualify for Chapter 7, filing for bankruptcy will offer a discharge of all these debts in most cases. This means you will owe nothing when the discharge occurs.
Chapter 13 is a lot different than this, but it offers some key advantages over Chapter 7. The first, and main difference is that through Chapter 13 you will have a repayment plan for three to five years. During this time, you must make payments to the bankruptcy court, and they use these payments to repay your debts.
You can include any debts you owe in your Chapter 13 plan, and the goal is to give you enough time to pay your bills that by the time the plan ends, you are caught up on all debts you owe.
One key advantage of choosing Chapter 13 is its ability to stop a foreclosure or repossession from occurring. Because you must agree to repay your debts through your repayment plan, you have time to get caught up on your debts, and you cannot lose your home or car during this time. Having time to repay debts is not something offered through Chapter 7.
If you think that bankruptcy is right for you, contact Justice Law Firm, PC. They specialize in many branches of law, including bankruptcy and can evaluate your financial situation to help you determine if you should file and which branch you should use.
