Which type of bankruptcy is right for you?

Choosing between Chapter 7 and Chapter 13 can be difficult.

2013-03-13

March 13, 2013 (Press-News.org) Which type of bankruptcy is right for you?

Article provided by The Law Offices of Raymond J. Antonacci, LLC
Visit us at http://www.rjalegal.com

If you are considering bankruptcy, you typically have two different options to choose from: Chapter 7 and Chapter 13. You may have questions about which option is right for you. The answer: it depends on your personal situation.

In both types of bankruptcy, you eventually are granted a discharge, meaning that you no longer have to pay many of your outstanding debts. However, that is where the similarities end for the two types. For example, in Chapter 13, your debts are consolidated into a payment plan to be paid back in full or partially over time. In Chapter 7, on the other hand, some of your property may be sold to pay your debts. However, this does not occur in the majority of cases.

Eligibility to file

To qualify for Chapter 7, you must first show that you lack the financial means to pay your debts. To accomplish this, you must undergo a means test and provide the court information about the property you own, you income and your debts. If your income is too high, you may not qualify for Chapter 7 bankruptcy.

Chapter 13 bankruptcy, on the other hand, is easier to qualify for. Your eligibility is determined by the amount of debt that you have. Currently the limit is $360,445 of unsecured debt, which is debt that is not secured by collateral, such as credit card debt or medical bills. Additionally, you cannot have more than $1,081,400 in secured debt--debt where collateral is required to complete the transaction (e.g. a mortgage or car loan).

How debt is handled

Another of the main differences between the two types of bankruptcy is how they treat your debts.
-Mortgages and car loans: In Chapter 13, you will likely be able to keep your house or car as long as you continue to make payments under the payment plan. In many cases, you may keep your house in Chapter 7; however, you may have to give up a second home or car.

-Alimony, child support and student loans: None of these debts can be discharged in either type of bankruptcy. If you cannot pay these debts off by the end of a Chapter 13 bankruptcy, you will still owe the remaining balance.

-Nonsupport debts owed because of a divorce or property settlement agreement: In Chapter 7, if your spouse objects, you will have to continue paying the debt unless you can show that you will still be unable to pay the debt after bankruptcy. In Chapter 13, any remaining balance will be discharged once the bankruptcy has been completed.

-Co-debtors: In Chapter 7, creditors can go after co-debtors for payment of the debt. In Chapter 13, co-debtors are protected against creditors.

Length of bankruptcy

Although you receive a discharge of your debt at the completion of both bankruptcies, the time it takes to complete differs between the two. Chapter 13 bankruptcy can take between three to five years to complete. However, Chapter 7 can take as little as three to four months.

An attorney can help

This is just a brief summary of some of the main differences between the two types of bankruptcy. As bankruptcy law is complex and full of exceptions, it is in your best interests to consult with an experienced bankruptcy attorney to determine the type of bankruptcy that is right for you.

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