Are you struggling with overwhelming debt and considering filing for bankruptcy? If so, you may be wondering which chapter of bankruptcy is right for you. Chapter 7 and Chapter 13 are the two most common types of bankruptcy filed by individuals in the United States. In this blog post, we will compare Chapter 7 vs Chapter 13 bankruptcy and help you determine which one is the best option for your financial situation.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a "liquidation bankruptcy." It is designed for individuals who have little to no disposable income and cannot afford to pay back their debts. In Chapter 7 bankruptcy, a trustee is appointed to sell your non-exempt assets to pay off your creditors. However, most of your debts will be discharged, meaning you will no longer be responsible for paying them.
Pros of Chapter 7 Bankruptcy:
- Quick process: Chapter 7 bankruptcy typically takes three to six months to complete.
- No repayment plan: Unlike Chapter 13 bankruptcy, you do not have to make payments to creditors.
- Fresh start: Most of your unsecured debts will be discharged, allowing you to start over financially.
Cons of Chapter 7 Bankruptcy:
- Asset liquidation: You may lose non-exempt assets, such as a second home or luxury items.
- Credit score impact: Chapter 7 bankruptcy will stay on your credit report for up to 10 years.
- Eligibility requirements: You must pass the means test to qualify for Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as a "reorganization bankruptcy." It is designed for individuals who have a regular income and can afford to pay back some of their debts over time. In Chapter 13 bankruptcy, you will create a repayment plan that lasts three to five years. You will make payments to a trustee, who will then distribute the funds to your creditors.
Pros of Chapter 13 Bankruptcy:
- Asset protection: You can keep your non-exempt assets as long as you make your payments.
- Credit score impact: Chapter 13 bankruptcy will stay on your credit report for up to seven years.
- Debt consolidation: You can consolidate your debts into one monthly payment.
Cons of Chapter 13 Bankruptcy:
- Lengthy process: Chapter 13 bankruptcy can last three to five years.
- Repayment plan: You must make payments to creditors for three to five years.
- Eligibility requirements: You must have a regular income to qualify for Chapter 13 bankruptcy.
Which One is Right for You?
The decision to file for Chapter 7 vs Chapter 13 bankruptcy depends on your individual financial situation. If you have little to no disposable income and cannot afford to pay back your debts, Chapter 7 bankruptcy may be the best option for you. If you have a regular income and can afford to pay back some of your debts over time, Chapter 13 bankruptcy may be the best option for you.
At The Fuller Law Firm, PC, we understand that every client's financial situation is unique. That's why we offer personalized bankruptcy services to help you determine the best course of action for your individual needs. Contact us today to schedule a consultation and take the first step towards financial freedom.
Start your free case evaluation with a Chapter 13 attorney in San Jose. We're ready to help you become debt-free! Call (408) 465-4472.