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Difference between Chapter 13 and Chapter 7 Bankruptcy

Post by Christopher Migliaccio

Although bankruptcy can help reduce the amount of debt owed or even eliminate it, it’s important to know which type to file. This may depend on several factors, including eligibility and the specifics of the person’s financial situation. Individuals filing for bankruptcy often choose either Chapter 13 or Chapter 7 depending on their circumstances.

Overview of Chapter 13 Bankruptcy

When filing for Chapter 13, there isn’t the risk of losing property. However, debt isn’t completely erased. Either some or all of the debt will still have to be repaid via monthly payment plans that extend over a specified period of time. Of course, this is based on the individual’s capacity to make payments.

Repayment is the basis of Chapter 13, generally to be completed within three to five years. The amount that has to be repaid depends on how much the applicant owes and how much he or she earns. To be eligible for Chapter 13, unsecured debt cannot exceed $360,475, and secured debt cannot be greater than $1,081,400.

For many people, Chapter 7 sounds better because it’s not based on repayment. But those who don’t qualify for that option may have no choice but to go with Chapter 13. Even so, there are many reasons Chapter 13 could be the better route to take.

For instance, if the intentions are to catch up on missed payments, such as for a car loan, it can only be done with Chapter 13. Or if there is debt that can’t be discharged in Chapter 7, such as a student loan, Chapter 13 would allow for it to be paid off over a period of time. Filing for Chapter 13 may even allow individuals to keep their homes or avoid car repossession.

Overview of Chapter 7 Bankruptcy

Chapter 7 brings the risk of assets being liquidated in order to pay back the debt that’s owed. Of course, there are certain types of property that are exempt (protected). Examples of exempt property may include bank accounts, vehicles, clothing and household goods. In Texas, applicants can choose those that fall under federal bankruptcy exemptions or by the state.

Common types of debt that can be permanently discharged in Chapter 7 are medical bills and credit cards. But one of the eligibility requirements is that the applicant must not earn enough to be able to repay the debt. The applicant must take a means test to see if he or she is capable of repaying the debt.

Talk to an Attorney about Which is Right for You

Laws and eligibility requirements vary between Chapter 7 and Chapter 13. It’s a good idea to contact an attorney who handles bankruptcy cases to learn the best option for an individual’s financial situation. Call Warren & Migliaccio in Plano at 888-584-9614 or fill out our contact form to set up a consultation.

Article Category: Bankruptcy

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