Differentiating between Chapter 7 and Chapter 13 bankruptcy – Choosing the right one
By Andrew Jackson
When a debtor is unable to meet his rising credit card and payday loan liabilities and doesn’t get fruitful results even after he decides to bankruptcy, he makes the decision to file bankruptcy to start afresh. Little do the debtors know that they can spoil their credit score terribly by filing bankruptcy, as they’re entirely unable to repay your debt obligations, much to the shock of the creditors. According to recent reports, the number of bankruptcies in the US is gradually rising out of control, as the job market isn’t aiding the debtors with enough cash.
The two most common types of bankruptcies are Chapter 7 and Chapter 13 and if you’re downing in debt and oscillating between both the types, here is a clear comparison between the two. Read on the concerns of this article to get yourself educated and thereby take an informed decision about repaying your debts.
Chapter 7 and Chapter 13 bankruptcy explained in short
For most individual debtors, their choices hover around Chapter 7 and Chapter 13 and their choices are always limited by the new means test that was introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act in the year 2005. This act is also called as BAPCPA in short. When a debtor files Chapter 7, his entire property is then a part of the bankruptcy estate from which the trustee will turn over assets to the creditors to recuperate the money that you owe them. There will be some assets that will be termed as “exempt property” and these will be withdrawn from the estate as they might have too little value to satiate the amount of debt owed by the debtor.
On the other hand, when you file Chapter 13 bankruptcy, the petitioner will require paying all his projected disposable income for the next 3-5 years to the standing trustee who will then distribute the payments to his creditors. The court will sanction an alternative debt repayment schedule through which the debtor can pay back his debt.
How Chapter 7 bankruptcy triumphs Chapter 13
The biggest benefit of Chapter 7 over the other is that the petitioner will receive discharge from his debts within a short span of time of 4-6 months whereas the petitioner will require waiting for at least 3-5 years in cases of Chapter 13. As the debtors achieve discharge of his debts, he can even establish new credit sooner than in Chapter 13 bankruptcy. Although Chapter 7 stays on your credit report for the next 10 years, it is possible to establish new credit sooner. Therefore a Chapter 7 is a more feasible choice for the debtors as restoring credit after bankruptcy is much easier after this type. You can just pay bills on time and avoid taking on further debt after you file Chapter 7 bankruptcy.
How Chapter 13 bankruptcy triumphs Chapter 7 bankruptcy
Here again, the main benefit of Chapter 13 over Chapter 7 is that the petitioner will be able to keep his properties that would or else be sold off to repay the unsecured creditors whom you owe money. A debtor who will file Chapter 7 can only retain the non-exempt properties by paying the trustee with the cash value of the property. You can repay your debt according to the new repayment plan that will be set by the Bankruptcy court. You can even feel satisfied about paying back a portion of your debt through this type. You can classify your creditors according to the priorities but only if this is accepted and allowed by the court. The automatic stay that will be imposed on the debtor will also be extended to the co-debtors who have even guaranteed the loan on behalf of the debtor.
Therefore, when your thoughts are oscillating between Chapter 7 and Chapter 13, you should consider the nuances and he details that have been mentioned above. Take an informed and measured decision that doesn’t hurt your financial health.
About the Author: Financial counselor associated with Oak View Law Group, APC for over 4 years. He analyzes peoples financial situation and advises them on the different debt relief options available. He also helps people manage budget to keep an eye on their financial planning.