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Chapter 7 or 13 Bankruptcy? Which One is Right for Me?

You’re sitting at the kitchen table going over all of the bills you have to pay. As you look at the due dates and compare them to the balance in your checking account, they don’t add up. In fact, you’re wondering how you’re going to cover your minimum payments on your credit cards.

You may even be trying to decide between paying your rent and buying gas or groceries. Suddenly, you’re considering something for the first time; the word “bankruptcy” keeps creeping up in your mind. In the United States, there are six types of bankruptcies, however, only two of them are primarily used by individual filers:

  • Chapter 7: debt liquidation
  • Chapter 13: repayment plan
  • Chapter 11: bankruptcy or businesses
  • Chapter 12: bankruptcy for family farmers
  • Chapter 15: bankruptcy for foreign cases
  • Chapter 9: bankruptcy for municipalities

If you looked at these, you may have drawn a blank for a second and that’s okay. More than likely, you’ll be filing either a Chapter 7 or a Chapter 13 bankruptcy, since those are the two chapters that are filed by individuals.

Chapter 7 Bankruptcy

Chapter 7 is known as the “liquidation bankruptcy.” With a Chapter 7, a court-appointed bankruptcy trustee is assigned to your case. He or she will sell your non-exempt assets (if you have any) to pay off your creditors. If you have any leftover unsecured debt, such as medical bills or credit card debt, it will most likely be erased. Many Chapter 7 bankruptcies are “no-asset” bankruptcies and none of the debtor’s assets are liquidated.

Certain debts, however, cannot be discharged in Chapter 7 or 13 bankruptcy, such as child support arrears, spousal support, and recent taxes. Chapter 7 is very popular for individual filers, but not everyone qualifies. This Chapter is reserved for low-income filers whose income qualifies them for this Chapter.

Chapter 13 Bankruptcy

If you don’t qualify for Chapter 7 because you earn too much, you’ll have to file a Chapter 13 instead. But if your goal is to save a home from foreclosure, a Chapter 13 may be your first choice anyway since this Chapter can help debtors save their homes.

With a Chapter 13, your debt is reorganized and you propose a repayment plan to the bankruptcy court. With a Chapter 13, you pay off all of your secured debt and a portion of your unsecured debt over 3 to 5 years. Your monthly payment will depend on your income and how much debt you have. If you need to stop a foreclosure, a Chapter 13 can help by giving you time to catch up on your payments.

To learn more about the filing and eligibility requirements, and other details of Chapter 7 and Chapter 13 bankruptcy, contact Dethlefs Pykosh & Murphy to schedule a free consultation with a member of our legal team.

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