Chapter 7 Versus Chapter 13 Bankruptcy

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When an individual seeks bankruptcy protection, he or she usually files a Chapter 7 or Chapter 13 case. If you are confused about which type of filing would be best for you, this blog will provide some general guidance. However, you should always consult with an experienced bankruptcy attorney to determine how a filing will impact your individual finances.

Man sitting superimposed over papers and a calculator image

Chapter 7

To be eligible for a Chapter 7 filing, you must pass the “means test.” This name is misleading because it isn’t a test, but rather a mathematical formula applied to your financial situation to determine if you are abusing the bankruptcy system. In other words, it is a way for the court to verify whether you really need bankruptcy relief or if you can actually afford to pay your debt. The means test will be discussed further in future blogs, so be sure to check back or contact us to learn more.

Most people want to file a Chapter 7 case if they qualify because you obtain your discharge (elimination) of debt quicker. In fact, the Chapter 7 process is one of the fastest and most comprehensive means for dealing with all of your debt at once. A typical Chapter 7 case lasts three to six months. Most Chapter 7 debtors are allowed to discharge or cancel most (if not all) of their unsecured debts, which includes credit cards and medical bills. This could potentially save you thousands of dollars!

Chapter 13

The Chapter 13 process allows you to reorganize your debt. To qualify for this type of case, you must have a regular source of income to fund your Chapter 13 plan and your debts must be below a certain level. Your plan sets forth how you intend to repay your creditors, either fully or partially, over a period of three to five years. A Chapter 13 filing is advantageous if you have valuable assets, such as a home, that you are past due on but you want to keep. The repayment plan allows you to make smaller payments to catch-up on the delinquent amounts. You may also be able to strip off inferior liens on your home, which will be discussed in future blogs.

If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you, contact Fitzgerald Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!

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