Chapter 13 & Chapter 7, the two most commonly used personal bankruptcy chapters. Your first question is probably, “Is it better to file Chapter 13 or Chapter 7?”
Both have some benefits and drawbacks, but thinking about the two from an overall perspective will help you select the perfect one for you.
However, before any filing is done, it is necessary to understand whether a 13 or a 7 is the best option for you. To do so, here are some considerations to take into account.
Bankruptcy Chapter 7 vs 13 – Understanding Each Chapter
Chapter 13 (Reorganization)
Chapter 13 bankruptcy requires a repayment plan. Although creditors can dispute how much they get under the Chapter 13 plan, if the bankruptcy court accepts it, they are committed by it.
The monthly payment is dependent on what you can afford to pay. Unlike under Chapter 7, you can reduce the interest rate and, in certain situations, even the sum owed on your auto loan by filing Chapter 13.
Since creditors get some money in a Chapter 13 bankruptcy, filers are not forced to give up any non-exempt property. Debt that is not repaid is erased by a Chapter 13 bankruptcy discharge when the 3 – 5 year repayment plan is put in place.
Chapter 7 (Liquidation)
Chapter 7 bankruptcy petitioners acquire their discharge within 3 – 4 months once their bankruptcy complaint is filed with the United States bankruptcy court. Creditors are not authorized to contact you once your petition is filed.
Although bankruptcy law states you have to sell specific assets to pay your unsecured creditors, if you’re like most Americans, you’ll be able to keep all of your property. That’s because bankruptcy restrictions limit what sort of property may be used to settle debts.
There’s no limitation with how much credit you may have in Chapter 7, but you can’t make huge profits. That’s one of the critical distinctions between Chapter 7 and Chapter 13 bankruptcy.
When Chapter 13 or Chapter 7 is Better
Chapter 13 is better when…
- You have lagged behind on your mortgage interest and need to catch up.
- You have non-dischargeable debts.
- You have a high-interest automobile loan or a trade-in vehicle with negative equity.
- You own many mortgages.
- You owe your ex-spouse money as a result of a property settlement.
Chapter 7 is better when….
- You have unsecured debt, such as credit card debt, medical expenses, outstanding liabilities following a repossession, and personal loans.
- You don’t have a reasonable income or if your income is insufficient to pay your essential living expenditures such as housing and food.
- You are unable to afford the services of a bankruptcy attorney to assist you with your bankruptcy case.
- You do not have any non-dischargeable debts, such as alimony or child support, or if you are current on these payments.
- You can’t make a settlement plan for at least three years.
Bankruptcy Chapter 7 vs 13: Which Do You Qualify For?
Chapter 7 bankruptcy is the smoothest form of bankruptcy. You file it, and the court discharges your debts.
Chapter 13 bankruptcy is slightly more complicated. You file it, and the court sets up a series of payments you are supposed to make to your creditors.
What’s the best kind of bankruptcy for me? Is Chapter 13 or Chapter 7 Better?
It depends on your circumstances; here are a few instances that illustrate the ideal bankruptcy strategy:
Employed Property owners Suffering Foreclosure or Mortgage Delinquency – Chapter 13
Chapter 13 bankruptcy allows homeowners who have fallen behind on mortgage payments to catch up or “cure” past due mortgage payments while erasing a percentage of dischargeable debt.
Filers can avoid foreclosure and eliminate a substantial amount of credit card debt, medical debt, and potentially even second and third mortgages or home equity lines of credit.
Because Chapter 7 bankruptcy does not allow homeowners to reclaim property defaults, it is not feasible for delinquent homeowners who wish to retain their residence.
Chapter 7 – Unemployed Debtors with Few Assets
Bankruptcy under Chapter 7 is the fastest way to eliminate debt in many instances. Indeed, this is the most prevalent type of bankruptcy, sometimes referred to as a “no asset” bankruptcy.
Homeowners Who Are Unemployed But Have Significant Property – Possibly Chapter 7
If a homeowner has a sizable equity investment in their house, Chapter 7 may or may not be the best alternative. If the homeowner’s state exempts a sizable portion of the homeowner’s equity, the home may be protected.
However, if the state mortgage exemption is insufficient to cover the equity in the property, a Chapter 7 bankruptcy may result in loss of the house.
Because the homeowner can retain the property only if they have sufficient income to afford a repayment plan, Chapter 13 is unlikely to apply to a jobless homeowner.
But either bankruptcy will give you a fresh start.
Speak with a Missouri Bankruptcy Lawyer
In the end, the decision to file under Chapter 7 or 13 is a complicated one. To assess which plan is the best fit for you, make sure that you meet with an experienced Missouri Bankruptcy Lawyer who understands the differences between each type of bankruptcy before deciding which one is correct for you.