Jeffrey M. Rosenblum, P.C.
A Fresh Start

Understanding the differences between Chapter 7 and Chapter 13

You may never have imagined that one day you'd be considering the option of filing for bankruptcy. The word has had a negative connotation for many years. However, contrary to what some people believe, it doesn't mean that you'll never get credit again or be able to fulfill your dreams. Indeed, with some vigilance and hard work, bankruptcy can be a step forward for you financially.

If you decide that bankruptcy is the best option for you, one of the first decisions you'll need to make is which type of bankruptcy to file. There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Which one(s) you qualify for and which is best for you depends on a number of factors. Let's look at each one.

Chapter 7

With this type of bankruptcy, you can be completely exonerated from your debt. However, you may need to liquidate some of your property so that it can be sold to pay off your debt. You may be able to keep some essential assets like your home and car. Once that's finished, you start anew.

Chapter 7 is generally recommended for people who have a considerable amount of debt but few assets. It's typically not recommended if you own a business. You also may not qualify if your income is high enough and/or you have a lot of valuable assets. You have to pass a means test to qualify for Chapter 7.

Chapter 13

This type of bankruptcy is an option for people who can't qualify for Chapter 7 or who don't want to sell off their assets. In Chapter 13 bankruptcy, a repayment plan over three to five years is developed. The bankruptcy continues throughout this repayment period. The bankruptcy trustee will help you deal with creditors as you go through the repayment plan. Many people prefer Chapter 13 because there's less disruption to their lives.

The best place to start if you would prefer Chapter 7 is to determine whether you qualify for it. An experienced bankruptcy attorney can help you with the means test. Whichever type of bankruptcy you choose, it's wise to have experienced legal guidance as you go through the process.

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