Four Key Differences Between Chapter 7 and Chapter 13 Bankruptcies

The two main types of bankruptcies today are Chapter 7 and Chapter 13, but many people do not understand the differences between the two. Both options offer relief for financial burdens, but only a bankruptcy attorney can help people decide which option is the right one. Anyone considering bankruptcy should understand the following four differences before choosing to file.

Time Frame
The first difference involves the time it takes to complete each type of bankruptcy filing. Chapter 7 is the branch that allows you to become debt free very quickly. Within a few months of filing your case, the court will most likely discharge your debt and close the case.

You typically need to go to bankruptcy court only once for a Chapter 7 case.
Chapter 13 takes three to five years from start to finish, and you may need to take multiple trips to the bankruptcy court in your district. There is no way to speed up a Chapter 13 case so that it lasts fewer than three years.

Discharge of Debt
Both branches of bankruptcy can discharge, or forgive, debt, but Chapter 13 is the branch that requires a repayment plan. If you qualify for Chapter 7, the court will discharge debts that qualify, and you will never owe them again.

Through Chapter 13 bankruptcy, you will repay the debts you owe over time. You might not have to repay 100% of the debt, but you will repay a good portion. The percentage you repay will depend on your income and the debts you owe. You will know at the start of the case how much you must repay.

Uses for Each Type
Every case is different when it comes to bankruptcy, and choosing the right branch is an important step in the process. Each branch of bankruptcy has pros and cons, and each is designed for debt-relief help for people in certain situations. Your case is no different. You will need to talk to a bankruptcy lawyer to find out which branch will benefit you more.

Chapter 7, for example, is a great choice for people struggling with major credit card debts. Chapter 7 is also great for people with deficiencies due to repossessions or foreclosures. This branch is also more beneficial for people who do not own a lot of assets.

For people on the verge of foreclosure, Chapter 13 is the better option. Chapter 7 will not typically prevent a foreclosure from occurring, but Chapter 13 will. Chapter 13 is also the better option if you are behind on debts involving child support, alimony, IRS taxes, or student loans. Chapter 13 gives you time to catch up on past-due debts by allowing you to repay them slowly.
Income Requirements for Qualifying

The last difference to know involves the income standards you must meet for bankruptcy. For Chapter 7, you must earn a lower income than the average for your own state. A lawyer can help you figure out whether or not you qualify.

To qualify for Chapter 13, you must prove that you earn enough money to repay the debts you have. You must have a consistent income, and it must be high enough to repay debts through a three- to five-year repayment plan.

If you are in trouble financially and do not know how to get out, you might consider bankruptcy. While bankruptcy has many consequences, in some situations, filing may be your best option. Meeting with a bankruptcy lawyer is the best way to find out whether bankruptcy is a good option for you, and you can learn this and much more by contacting William S. Orange III, Attorney At Law.

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