Bankruptcy Simplified: Chapter 7 vs. Chapter 13

In this article we discuss the main features and differences between the two and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

If you are ever unlucky enough to get yourself in a situation of unplayable debt then filing for a Chapter 7 or Chapter 13 bankruptcy can be your way of minimizing, or even eliminating, the burden. Many people often get confused between the two, or are unable to decide which one is better for solving their personal debt issues. In this article, we discuss the main features and differences between the two, and whether you should avail Chapter 7 or Chapter 13 for discharging your debt.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy deals with the liquidation of non-exempt assets as a means to pay off the debts. It can be filed by both businesses and individuals.  Debt discharge is quick, usually taking around 3 to 6 months in most cases. Chapter 7 is the simplest and most common form of bankruptcy program that people file for.

When to Choose

Eligibility for Chapter 7 debt discharge is restricted to only those debtors with a low enough disposable income. Check to see if you qualify by passing the Chapter 7 means test eligibility threshold. Individuals should choose to file for Chapter 7 if their debt is dischargeable, and if creditors are not legally barred from seizing their assets.

Benefits & Drawbacks

The main benefit of Chapter 7 is that you can quickly eliminate most, if not all, of your debt and get a fresh start. The biggest drawbacks are the risks of you losing your property. Fortunately, such case results are rare in the US, and more so in Texas with its more favorable laws. Another drawback is that it may cause a temporary drop in your credit score.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy, on the other hand,  deals with the re-organization of your debt in order to make it easier for you to repay it. This Chapter is only available to individuals and the debtor cannot receive a discharge until the completion of the Chapter plan. 

When to Choose

You are only eligible for Chapter 13 bankruptcy if you earn a regular income, and if your debt does not exceed $394,725.00 (unsecured) or $1,184,200.00 (secured). Individuals should choose to file Chapter 13 if their debt isn’t dischargeable under Chapter 7, or the value of their assets is worth more than the available exemptions. Additionally, they can also file it if they just want to make up for past outstanding payments on their mortgage or car loan.

Benefits & Drawbacks

The main benefit is that that none of your assets are sold off to pay off your debt. Another advantage is that debt repayments are determined by what you can afford, and further interest isn’t incurred during the duration of the plan. A drawback is that most, or all of your disposable income will be tied up in repayments and you may temporarily see a decline in your credit score.

Before filing for either a Chapter 7 or Chapter 13 debt discharge, it is always recommended to speak with a legal attorney who can best advise you on the course of action you should take in discharging your debt with minimal losses.  If you are in need of a professional personalized legal service, contact The Law Offices Sean T. Flynn at 512.640.3340 or contact directly online.

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