Chapter 7 vs. Chapter 13 Bankruptcy
It’s not hard to get into serious debt. It is much easier to spend money than it is to make it and save it. Bad spending habits, medical emergencies, unemployment and rising prices can all lead to financial issues.
Some people get stuck in a cycle where they have to keep using their credit cards for necessities. They just can’t pay down their debts. They can’t make car or house payments and face repossession or foreclosure.
There is a solution to this: bankruptcy. Consumers have two options for bankruptcy: Chapter 7 and Chapter 13. Read on to learn about the differences to see which one is right for you.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is known as liquidation. In this bankruptcy, you will be forced to sell your assets so you get money to pay off your debts. All your debts would be discharged, which means you would not have to pay them back. Chapter 7 bankruptcy gives you a clean slate. This bankruptcy is for those who have limited or no income and would not be able to repay their debts over time.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is known as reorganization. Instead of wiping the slate clean, like a Chapter 7 bankruptcy, your debts are reorganized so you have lower monthly payments. This type of bankruptcy requires a repayment plan, which you will follow for 3-5 years. As long as you abide by the plan, you can keep your house and vehicles. After the plan has been completed, any remaining debts may be discharged.
Which Should I Choose?
The type of bankruptcy you should choose depends on your financial situation. It will depend primarily on your income. For Chapter 7 bankruptcy, you must pass a means test, which means your disposable income must be low enough to qualify. If you earn more money, your only other option is Chapter 13. To qualify, you must have less than $394,7255 of unsecured debt or $1,184,200 of secured debt.
Chapter 13 bankruptcy is available for individuals and sole proprietors only, while Chapter 7 is for individuals and businesses. Chapter 7 bankruptcy is a much quicker process, lasting just 3-5 months. Chapter 13 bankruptcy, on the other hand, lasts 3-5 years.
While Chapter 13 bankruptcy lasts longer, it allows you to keep your possessions. Chapter 7 does not. It also affects your credit more because you are simply erasing your debt rather than making any attempt to pay it off. Therefore, you should determine what is important to you when making the decision.
Contact a Coral Springs Bankruptcy Attorney
If you are struggling with debt, bankruptcy may be the best option. There are two options available for consumers, so make sure you choose the best one for your situation.
Bankruptcy can help eliminate debt and improve your credit score. In some cases, you can even keep your assets. To learn more, contact a Coral Springs bankruptcy attorney at The Law Offices of Barry S. Mittelberg, P.A. To schedule a free consultation, call (954) 752-1213.