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Should You File Chapter 7 Or 13? How To Know

20 July 2022 by Yolanda Lane

There are many types of bankruptcy, all known by the chapter they occupy in the bankruptcy code. Most consumers end up filing either chapter 7 or 13. These two forms of bankruptcy both allow consumers to get some financial relief but in different ways. Read on for a comparison of the two.

Chapter 7 Liquidation

This type of bankruptcy is relatively quick. It may only take a few months to be complete depending on the case backlog in your federal district. It's also known as the most efficient way to rid yourself of nearly all credit cards and other unsecured debt instantly. Unsecured debt applies to credit cards, medical, personal, and many more types of debt. With so many consumers being burdened by credit card and medical debt, this form of bankruptcy gives many filers a much-needed fresh start.

The downside of chapter 7, however, is that you might lose property. The liquidation part of chapter 7 means that some filers who own property not protected by bankruptcy exemptions can lose assets. Speak with your bankruptcy lawyer about your home, vehicles, and other property to find out what is covered by exemptions and what could happen if you file.

The other downside to chapter 7 is that filers must show that their income is in line with that of the state. The median income of the state of residence must not be lower than the filer's income. Speak to a bankruptcy lawyer if your income is higher than the state median to find out if you can apply the means test and still file.

Chapter 13 Restructuring

This form of bankruptcy involves an agreement to pay back your debts. However, the amount paid may be negotiated to be less than the filer owes. In some cases, the debts are forgiven once a certain percentage is paid off. Also, balances are negotiated to remove accrued finance charges, penalties, late fees, and more. As mentioned above, chapter 13 may be ideal for those who have higher than normal incomes but still need debt relief.

When you enter a restructuring plan, you have options. You can always turn your chapter 13 into a chapter 7 if things are still unmanageable. The bankruptcy court must approve of such a move, though. Those filing chapter 13 create restructuring plans that last several years.

Speak to a bankruptcy lawyer and find out more about both ways of obtaining debt relief right away. If you want to know more about bankruptcy, click for more information.

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