Chapter 7 vs. Chapter 13: which is right for you?

March 01, 2013

Chapter 7 vs. Chapter 13: which is right for you?

Article provided by The Law Offices of Elkins & Freedman
Visit us at http://www.elkinsfreedman.com

If you are having difficulties paying your bills, you are not alone. With the economy slowly recovering, there are many others in your situation. You may be considering bankruptcy as a solution to your problem. If so, it is helpful to know your options.

There are two types of bankruptcy that you could file: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, many of your debts are discharged, meaning that you no longer have to pay them. In Chapter 13, you work with the bankruptcy courts to establish a payment plan where you pay back your debts in full or partially, depending on your financial means. There are a number of other differences between the two types of bankruptcy.

Eligibility

In order to qualify for Chapter 7 bankruptcy, you must first show that you are unable to pay your debts. In order to do this, you must undergo a means test and provide information about your income, the property you own and the amount of debts you owe.

In Chapter 13 bankruptcy, your eligibility is determined by the amount of money you owe. Currently the limit is $1,081,400 for secured debt--debt where your obligation to pay is secured by collateral (e.g. a mortgage). Additionally, you are limited to $360,445 of unsecured debt--debt not requiring collateral such as credit cards, medical bills and personal loans.

Duration

A Chapter 7 bankruptcy can take as little as three to four months to be concluded. Chapter 13, on the other hand, takes between three to five years.

Consult an attorney

Whether Chapter 7 or Chapter 13 bankruptcy is right for you depends on many factors. As bankruptcy laws are very complex, it is wise to consult with an experienced bankruptcy attorney. An attorney can consider your personal situation and recommend an option that is right for you.