If you’re dealing with mountains and debt, you likely have many questions about what you should do and how to deal with your financial troubles. Filing bankruptcy can provide the relief you need. But what’s the difference between Chapter 7 vs Chapter 13? Which should you file, and what are the pros and cons of each type of bankruptcy?
At Burke Smith Law, we can give you answers and help you understand your legal options. Call us today at (402) 718-8865 to start the process of regaining control of your finances and getting a fresh start.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy allows you to discharge most of your debt. Often called “liquidation bankruptcy,” Chapter 7 allows consumers to completely eliminate most non-secured debt quickly and easily. Secured debt, such as car loans and home mortgages, may either be eliminated. Or, you can lower the payments if you choose to keep your property. Some debts, such as tax debt and unpaid child support, is not typically dischargeable through Chapter 7.
In order to file Chapter 7, you must qualify through a Means Test, which determines if your income is low enough to be eligible for Chapter 7. If your household income is too high, you may not be able to file Chapter 7. This is one major difference with Chapter 7 vs Chapter 13.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows you to reorganize debts while keeping most of your property. You may combine all of your non-secured and secured debt payments into one manageable payment plan. The plan allows you to repay your debt over the course of three to five years. After five years, the remainder of most of your debt will be discharged if you have made sufficient payments over the time of your payment plan.
You do not have to qualify for Chapter 13 through an income-based test. Anyone can file Chapter 13, as long as they have not previously filed bankruptcy within a restricted time period. Determining which type of bankruptcy you qualify for is one of the most important considerations.
How Long Is the Process? Chapter 7 vs Chapter 13
Chapter 7 vs Chapter 13 vary greatly in the amount of time until discharge. Although both types of bankruptcy can help you manage debt, the length of time you will be involved in the bankruptcy process differs greatly. Both Chapter 7 and Chapter 13 require extensive legal documents, several hearings, and a meeting of creditors.
However, from start to finish, a Chapter 7 bankruptcy usually takes four to six months. A Chapter 13 bankruptcy, on the other hand, is not considered completed until the payment plan is complete, which can be up to five years. When considering filing Chapter 7 vs Chapter 13, you should have an understanding of how long your bankruptcy process will take.
Types of Debt You Can Eliminate Through Chapter 7 vs Chapter 13
All of your debt can be managed through bankruptcy; however, not all debt can be completely eliminated. For example, bankruptcy cannot completely eliminate tax debt, student loans, criminal conviction fines, and unpaid child support and alimony. However, it is possible to restructure payments and seek payment options through bankruptcy.
The way the bankruptcy court handles debt between Chapter 7 vs Chapter 13 is also very different. Chapter 7 will completely eliminate all of your eligible debts, including non-secured debt and consumer debt. It may eliminate secured debt, but you may have to forfeit, or liquidate, your property. Chapter 13, on the other hand, allows you to keep all of your property while developing payment plans for car loans, home mortgages, and other types of debt.
A Bankruptcy Lawyer Can Help You Decide Between Chapter 7 vs Chapter 13
If you’re dealing with a difficult financial situation, you may be considering bankruptcy. Our skilled attorneys can help you determine the benefits of Chapter 7 vs Chapter 13. Choosing the type of bankruptcy best suited to your situation will help you move forward with your life. Contact Burke Smith Law today at (402) 718-8865.