The differences between Chapters 7 and 13 bankruptcy

On Behalf of | Sep 15, 2022 | Personal Bankruptcy |

Why do bankruptcy cases sound like Dickens novels? Chapters are named after their place in the United States federal bankruptcy code. While they may not be as interesting as those novels, they can offer people a financial lifeline when they are drowning in debt.

Bankruptcy has become common, especially in these times. With rent and mortgage hikes, grocery costs soring and energy rates spiking, many households are struggling. So, if you are thinking about bankruptcy, know that you are not alone, but determining whether personal bankruptcy is right for you is another matter. It may be helpful to take a broad overview look at Chapter 7 and Chapter 13 bankruptcies.

Chapter 7 bankruptcy overview

Legal Assistance of Western New York defines Chapter 7 bankruptcy as pure liquidation. In exchange for some of your assets or property, which are sold for the benefit of creditors, most, if not all, debts are wiped from your slate. Please note that it is important to discuss with an attorney what types of debts are and are not eligible for forgiveness, as some debts, like student loans, are not easily dischargeable.

Chapter 13 bankruptcy overview

Chapter 13 bankruptcy is less common because it requires a creditor payment plan. In exchange, the bankruptcy applicant can often retain assets, like a home, in addition to relief from collection attempts. After the binding agreement between the applicant and creditor is complete, the applicant’s debts are discharged. Chapter 13 requires proof of income to meet the payment plan, so it may not be right for everyone, especially if your income fluctuates.

Is either option right for me?

A New York attorney who is knowledgeable about bankruptcy law can be an asset in helping you determine if bankruptcy is right for you and help determine if you qualify for the process. New York sets a “means” test for Chapter 7 bankruptcy fillings to see if a filer’s personal assets are too high for the state’s standard of qualification.

New York also requires filers to complete a credit counseling course before the bankruptcy process begins. If you feel like you are carrying the financial weight of the world on your shoulders, it is okay to ask for help. You are not alone.