When contemplating bankruptcy as a solution to overwhelming debt, individuals often find themselves questioning whether they should file for Chapter 7 or Chapter 13 bankruptcy. While Chapter 7 might initially seem appealing due to its ability to discharge eligible debts quickly, it’s not suitable for everyone.
Due to a variety of concerns, certain qualifiers for Chapter 7 should also potentially consider whether Chapter 13 might be a more advantageous route forward. If you qualify for Chapter 7 bankruptcy but you’re unsure of whether Chapter 13 might be a better fit, understanding the key differences and implications of each can help you make an informed decision that aligns with your financial situation and goals.
Chapter 7 v Chapter 13 bankruptcy at a glance
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to wipe out eligible unsecured debts, such as credit card debt and medical bills, typically within three to six months. However, Chapter 7 may result in the loss of certain assets, as a bankruptcy trustee is empowered to sell nonexempt property to pay creditors. While this is a very rare turn of events, it is a risk.
Chapter 13 bankruptcy, on the other hand, is more of a reorganization of debt. It’s designed for individuals with regular income who can pay back a portion of their debts through a repayment plan over three to five years. Chapter 13 allows debtors to catch up on missed mortgage payments, car loans and other secured debts, potentially preventing foreclosure or repossession.
Making a decision
Ultimately, if you own significant nonexempt property that you wish to keep, Chapter 13 provides an avenue to do so, as you’ll repay debts over time rather than risking liquidation of your assets to pay creditors. Additionally, if you’re trying to prevent repossession or foreclosure, Chapter 13 may be a preferable alternative.
With all of this said, everyone’s situation is different. As a result, it may benefit you to seek legal guidance so that you can better ensure that you’re empowered to make an informed decision about your unique circumstances.
