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Chapter 7 vs. Chapter 13 Bankruptcy: The Choice to Get Your Financial Life Back

Posted: Friday, December 27th, 2019 at 8:17 pm

Chapter 7 vs. Chapter 13 Bankruptcy: The Choice to Get Your Financial Life Back

Filing for bankruptcy is an important decision with short-term and long-term financial consequences. For many, it is often the final and only choice left to climb out from deep debt that is crippling every aspect of daily life. The two ways individuals or small businesses can file for bankruptcy are Chapter 7 and Chapter 13, depending on their unique circumstances.

No two cases are the same. Those at the end of their financial ropes must weigh the differences to determine which method of getting back on their feet again will work best for their situation. The primary difference between Chapter 7 and Chapter 13 bankruptcies is that one will have your debts eliminated, while the other sets up a payment structure to pay off at least part of the debts owed.

Benefits of Filing Bankruptcy Under Chapter 7 or Chapter 13

Chapter 7 bankruptcy is commonly referred to as “liquidation” bankruptcy, while Chapter 13 is often called “reorganization” bankruptcy. Your specific financial status and history will help to determine which is right for you. A thorough examination of the benefits of each type will put the issues and potential consequences in focus to make the best choice.

Filing Chapter 7 Bankruptcy

Individuals with very little or no disposable income who can prove they don’t have the means to remit their debt can file for Chapter 7 bankruptcy. Benefits of Chapter 7 include:

• Eliminates monthly payments to creditors
• Can provide at least temporary relief from debt collectors
• Typically clears debt faster than Chapter 13 bankruptcies
• Assets are lost in exchange for the release of debt
• Credit rating and borrowing ability will decrease

Filing Chapter 13 Bankruptcy

Those who own property they would like to keep, including small businesses may opt to file for Chapter 13 bankruptcy. Features of Chapter 13 include:

• Individuals and small businesses that have decided to file for bankruptcy may be required to file under Chapter 13
• May halt debt collectors and foreclosure process
• Helps to pay off accumulated debt
• Can take up to five years to have debts complete discharged
• Debts will be paid off, but the repayment process will put additional stress on budget plans
• Failure to follow agreed upon payment plan may result in a loss of Chapter 13 status
• Credit rating impact may not be as severe as a Chapter 7 bankruptcy

Bankruptcy Decisions Have Long-lasting Consequences

Bankruptcy is a significant legal process with long-lasting, serious consequences to the financial condition of individuals and small businesses. Those who find themselves in such dire financial situations often have no choice but to file for bankruptcy.

The specific details and needs of each case will often make it clear or even mandate whether to file under Chapter 7 or Chapter 13. Understanding how each work and their potential consequences can help navigate the complicated process and come out of it with a new lease on your financial future.

Contact Experienced Bankruptcy Attorney

Mistakes or miscalculations in the process of filing for bankruptcy can cost you a lot of hassle and even more money. An experienced bankruptcy attorney can help wade through the complicated maze of red tape it takes to make the best use of the statues and guidelines related to bankruptcy law.  

 

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