If you’re considering bankruptcy, one of the most important choices you will make is which type of bankruptcy to file. Many people wonder whether one chapter is inherently better than the other, but the answer is complicated because it truly depends on your situation, and only an experienced attorney can provide the soundest advice.
However, learning about the differences between each chapter can help you get the most out of your complimentary consultation with your attorney. Knowledge is power, which is why our team has compiled some of the most important information about the two most common types of bankruptcy. If you have any more questions or want to get started on your case right away, please don’t hesitate to contact Nguyen Law Group today.
In terms of how much debt you’ll need to repay, Chapter 7 is a more attractive option because it does not require you to make any payments during your case. Chapter 13, on the other hand, establishes a repayment plan that lasts for 3-5 years.
Time and Cost
Chapter 7 takes roughly 4-6 months, while Chapter 13 takes 3-5 years. As such, Chapter 13 is typically more expensive because your attorney will be involved for a longer amount of time. You will also need to repay a substantial portion of your debt under Chapter 13.
Additionally, some Chapter 7 filers may qualify for a fee waiver if they have a low enough income. Chapter 13 typically does not offer this relief.
Qualifying for Bankruptcy
Chapter 7 and Chapter 13 have different requirements, which is why some people will qualify for one chapter and not the other.
Chapter 7, for example, requires filers to pass a means test. Generally, you will have to make less than your state’s median income (with certain exceptions).
Chapter 13, on the other hand, has a debt limit. You can make much more than your state’s median income, but you cannot owe more than $1,257,850 in secured debts and $419,275 in unsecured debts. You will also have to make monthly payments for 3-5 years, and the court will likely convert your case into a Chapter 7 if you stop making these payments.
Avoiding Foreclosure or Repossession
While both Chapter 7 and Chapter 13 trigger an automatic stay, which temporarily halts and prevents processes like foreclosure and repossession, Chapter 13 is generally more useful in the long run for those who are on the verge of losing their home or vehicle.
This is because Chapter 13 allows you to cure the default by adding missed payments to your 3-5-year repayment plan. So long as you complete this payment plan (and continue making regular payments to your lender), you should be safe from foreclosure or repossession by the end of your case.
Chapter 7, on the other hand, temporarily protects you from foreclosure or repossession, but this protection only lasts for the duration of your case (only 4-6 months). While you can technically discharge your liability for a mortgage debt or auto loan, the discharge will not cancel your lender’s right to seize your home or vehicle once the case is over and the automatic stay lifts.
If you have defaulted on a mortgage or auto loan and want to use bankruptcy to save your home or car, Chapter 13 is most likely the best way to do so.
Get the Personalized Counsel You Need
To learn whether bankruptcy is right for you and, if so, which chapter is better for your situation, come to Nguyen Law Group. We provide trustworthy and effective counsel at an affordable rate because we want to make a positive, lasting impact. You can depend on our law firm to thoroughly assess your circumstances, develop a customized legal strategy, and help you achieve relief from debt as soon as possible.