Comparing Chapter 7 and Chapter 13 Bankruptcies: Which Should You Choose?
Bankruptcy has a negative association in today’s world. Even then, in our 20+ years of experience, our bankruptcy attorneys have observed that filing for bankruptcy can give you and your family a fresh start in your life. Without the baggage of debts on your shoulders, it is very liberating to take small but secure steps towards your financial freedom again.
There are four bankruptcy chapters, you might be confused as to which one to apply for. Worry not, today’s article talks about the different chapters in detail. We are certain the information below can help you make your decision.
4 Types of Bankruptcy Chapters
Even though the average person can only file for chapter 7 or chapter 13 bankruptcy, there are actually four types of bankruptcy chapters.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy discharges you of your unsecured debts (most types). Any non-exempt property that you have will be sold by the trustee to repay your creditors. It is a liquidation bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy makes use of a repayment plan established by the court and your bankruptcy attorney to clear your debt to the creditors. Depending on the debt, you pay some creditors fully and some partially. It falls under reorganization bankruptcy.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy is similar to Chapter 13, the only difference being that it is most suited for large companies.
Chapter 12 Bankruptcy
Chapter 12 Bankruptcy is another type of reorganization bankruptcy that is used by farmers and fishermen. It is different from Chapter 13 in the fact that it allows for higher debts and the repayment plans are more flexible.
Which Bankruptcy Chapter Should You File Under?
Unless you are a farmer or a fisherman you can’t file for Chapter 12. Individuals can still file for Chapter 11 but it rarely makes sense to do so. That leaves us with two options, Chapters 7 and 13. We prepared a side-by-side comparison to help you decide which chapter is more beneficial to you.
Eligibility Criteria
Chapter 7 -
Chapter 7 is denied if you have a large income. To decide so, the courts will look into your income, expense, and dependents. You also cannot have a chapter 7 bankruptcy in the previous 8 years or a chapter 13 bankruptcy in the previous 6 years. If you already filed a petition and it was declined, you will have to wait 180 days until you can file a new one.
Chapter 13 -
Chapter 13 bankruptcy looks at the amount of outstanding debt you have. Unsecured debt should not be more than $419,275 and secured, not more than $1,257,850. The applicant must have proof of sufficient, regular income. They are also required to stay current on their tax filings. You will be deemed ineligible if you have a chapter 13 bankruptcy in the past 2 years or a chapter 7 bankruptcy in the past 4 years. Similar to Chapter 7, if your petition was dismissed you cannot apply for a new one until 180 days have passed.
Time Taken for Discharge
Chapter 7 -
It takes around 3-4 months to achieve a discharge. Even the most long-drawn cases should be discharged in less than 6 months.
Chapter 13 -
Depending on the repayment plan developed, it can take anywhere from between 3 to 5 years to achieve discharge.
Credit Report
Chapter 7 -
It is going to show up on your credit report for up to 10 years from the date of filing.
Chapter 13 -
Will show up on your credit report 7 years from the date of filing.
Key Advantages
Chapter 7 -
In Chapter 7 bankruptcy the bureaucratic procedures are fast. The liquidation of property ensures that the debt is resolved quickly.
Chapter 13 -
Chapter 13 bankruptcy is ideal if you want to retain your assets. It also protects you from the risk of secured debt like mortgages.
Both, Chapter 7 and 13 bankruptcies provide protection against legal action from creditors.
Key Disadvantages
Chapter 7 -
The trustee has the legal power to sell your non-exempt property. In the case of unsecured debt, Chapter 7 does not guarantee protection from foreclosure or repossession.
Chapter 13 -
The repayment plan can extend for too long to be of your liking. Sometimes it also proves to be costlier.
Reneau Law Group Can Guide You
Our bankruptcy attorneys at Reneau Law Group are highly experienced and provide superior client representation. We have been serving the Oklahoma City metro area for over 20 years now and our clients have only good words to say for us. To book an appointment give us a call at (405) 732-5432. We also offer free consultation services!
**Disclaimer: The above article does not imply a relationship between attorney and client, nor does it aim to provide any legal advice.