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Chapter 7 Vs Chapter 13: Understanding Your Options When Filing Bankruptcy

Bankruptcy helps thousands of people get a financial fresh start every year. If you are considering filing for bankruptcy, you have two options: Chapter 7 bankruptcy, or Chapter 13 bankruptcy. Your ability to file either of these types of bankruptcy cases will depend on your income, assets, debts.

Chapter 7 Cases

A Chapter 7 case is the simplest form of bankruptcy. This type of case is designed to wipe out most of your unsecured debt. Unsecured debt is generally debt like medical bills, credit card payments, and other accounts that are not secured by a loan. In contrast, a mortgage on a house or an auto loan on a car makes these types of debts secured. A Chapter 7 bankruptcy cannot remove your obligation to pay most secured debts.

In order to qualify for a Chapter 7 bankruptcy, you must have little or no disposable income and few assets. Chapter 7 debtors are only allowed to keep a certain amount of property which is known as exempt property. Often, Chapter 7 bankruptcy exemptions only protect $2,000-$3,000 worth of assets. Any property that is not covered by an exemption may be sold by the trustee in order to pay your debts.

Once the paperwork for a Chapter 7 case is completed, you will have to attend a meeting of the creditors, also known as a 341 meeting. At this meeting, you and your attorney will meet your trustee, who administers your case. Occasionally, creditors may attend this meeting if they have an objection to your bankruptcy case. However, this is relatively rare and usually only occurs when a debtor is accused of fraud.

If your Chapter 7 case is approved after your 341 meeting, there will be a 90-day waiting period to allow any other creditors to file a claim or an objection. If no one objects to your bankruptcy and there are no outstanding issues, you will receive a bankruptcy discharge and you will no longer owe any of the debts listed in the Chapter 7 case.

Chapter 13 Cases

If you make too much money to qualify for a Chapter 7 case, you will have to file a Chapter 13 bankruptcy. Chapter 13 cases are more like a financial reorganization, and allow debtors to pay off debts over a period of 3 to 5 years.

Debtors in a Chapter 13 case are allowed to keep all of their property. In exchange, the debtor has to pay back at least a portion of his or her debts during the course of the case. Rather than make several payments to multiple creditors, the debtor will make one payment every month to the trustee, who will distribute the money to the creditors. At the end of the 3 to 5 year period, any unsecured debts that are not fully paid will be discharged, just like in a Chapter 7 case.

Chapter 13 cases are often used by homeowners who have fallen behind on their mortgages. To avoid foreclosure, a Chapter 13 case allows a homeowner to catch up on the missed payments over a period of time. The debtor will need to continue to make regular monthly mortgage payments (either through the trustee or outside of the plan), and the bankruptcy case will prevent the mortgage lender from moving forward with a foreclosure. These cases also allow homeowners to strip unsecured liens from their home.

Filing for bankruptcy is an important decision. While bankruptcy can help your credit in the long run, your credit score will take a hit initially. Chapter 7 bankruptcies will stay on your credit report for 10 years, while Chapter 13 bankruptcies will stay for 7 years.

Bankruptcy cases are complicated, and the consequences for failing to follow the court’s rules can be severe. It is rarely wise to attempt a bankruptcy on your own, and it is important to seek out the help of an experienced bankruptcy attorney.

At Loan Lawyers, our attorneys understand the different types of bankruptcies and can help you make the best choice for your financial future. Our lawyers have over 90 years of combined experience, and can help you get the fresh start you need.

To schedule your free consultation, contact Loan Lawyers today by calling (844) FIGHT-13 (344-4813).