Chapter 7 and Chapter 13 bankruptcy are two of the most commonly filed types of bankruptcy. Both are legal tools to get debt relief if you can no longer keep abreast of your minimum payments; however, the bankruptcy option best suits you depending on your financial situation, as well as your financial goals.

Although Chapter 7 and Chapter 13 bankruptcy differ on various levels, both options grant the filer a bankruptcy discharge, a court order that bans lenders and debt collectors from attempting to collect the outstanding debt. This means no more letters in the mail and no more phone calls because you are no longer liable for the debt.

What Is Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 bankruptcy filers usually get their discharge 3 to 4 months after filing their bankruptcy petition with the U.S. bankruptcy court. You will not be required to pay creditors, debtors, or lenders once your case is filed. While bankruptcy law states that you need to sell some property to pay your unsecured creditors, the chances are that you will still be able to keep all your property. This is because bankruptcy exemptions limit the types of property that can be sold to pay creditors.

Chapter 13 requires debtors to follow a repayment plan. Even though creditors can get more money under Chapter 13, once the bankruptcy court approves a payment plan, they must adhere to the court-approved repayment plan. The monthly payment is determined by how much you can afford to pay. With Chapter 13, individuals can lower the interest rates or the balance owed (although not in all cases) on car loans. Conversely, Chapter 13 works best for individuals with stable incomes to allocate some of their money toward debt payment but do not have enough income to pay their debt as mandated.

Is Chapter 7 or Chapter 13 Better?

Most debtors prefer Chapter 7 because it is cheaper and faster than Chapter 13. A significant portion of filers qualifies for Chapter 7 after taking the means test, which is used to analyze one’s family size, expenses, and household income to determine eligibility. Chapter 7 also discharges qualifying unsecured medical bills, personal loans, and credit card bills. Chapter 7 is ideal for low-income debtors who have little or no assets.

On the other hand, Chapter 13 works best for debtors with regular income, who can spare some monthly salaries to pay a portion of their debt. Chapter 13 is ideal for debtors who have non-dischargeable obligations such as child support or alimony arrears that they want to pay off in a span of 3 to 5 years; do not qualify for Chapter 7 bankruptcy but need debt relief to prevent wage garnishment, stop litigation, or lower credit card payment; or have missed a few cars or house payments and want to catch up on missed payments without losing the property.

What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy?

There are several differences between chapter 7 and Chapter 13, including:

Type of Bankruptcy

Chapter 7 is known as liquidation bankruptcy, whereas Chapter 13 is known as a reorganization bankruptcy.

Who Can File Which Bankruptcy Chapter?

Individuals and business entities can file chapter 7 bankruptcy. Chapter 13 bankruptcy can only be filed by individuals, including sole proprietors.

What Are the Eligibility Restrictions of Each Chapter?

With Chapter 7 bankruptcy eligibility restrictions, disposable income must be low enough to pass the Chapter 7 Means Test. 

How Long Must One Wait to Receive a Discharge?

A Chapter 7 bankruptcy case usually takes 3 to 4 months to complete. On the other hand, once 

you complete all plan payments, Chapter 13 usually takes 3 to 5 years.

How is Property Affected in Bankruptcy?

With Chapter 7 bankruptcy, a trustee can sell the non-exempt property to repay creditors. With Chapter 13 bankruptcy, debtors keep all property; however, they must pay unsecured creditors an amount equivalent to non-exempt assets’ value.

What about Lien Stripping?

Chapter 7 does not allow removing unsecured junior liens from the real property through lien stripping, whereas Chapter 13 does only if requirements are satisfied.

When Should You File For Chapter 7 or Chapter 13 Bankruptcy?

If you have some disposable income and have not accumulated a lot of debt, you can choose between chapter 7 and Chapter 13 bankruptcy.

You should file for Chapter 7 bankruptcy if:

• You do not have non-dischargeable debts.
• Your total monthly income cannot cover your living expenses like electricity, mortgage, or food.
• You cannot commit to a repayment plan for the next three years.
• You only have unsecured debt such as personal loans, medical debt, or credit card debt.
• Your total monthly income cannot cover your living expenses like electricity, mortgage, or food.

You should file for Chapter 13 if:

• You have more than one mortgage.
• Your car loan has a high-interest rate.
• You have debts that cannot be discharged, such as student loans.
• An exemption does not protect your property, and you want to keep it.
• You are behind on your mortgage payment and want to catch up.
• You owe money to your ex-husband or wife from a property settlement. 

Whether you are filing for Chapter 7 or Chapter 13 bankruptcy, filing bankruptcy is a complicated process. Michael Alan Siddons is here to discuss all your options for Chapter 7 and Chapter 13, walk with you throughout the entire process, and help you get a fresh financial start.

How Does Bankruptcy Affect Your Credit Score?

Bankruptcy leaves a stain on your credit history, affecting your credit scores, as well as your ability to acquire new credit. Chapter 7 remains on your credit report for ten years, whereas Chapter 13 remains on your credit report for seven years after the filing date. As long as it appears on your credit report, bankruptcy will affect your credit scores. Some secured creditors even go as far as ignoring applicants with bankruptcies on their reports.

How Much of Your Secured Debt Do You Have to Repay to File for Chapter 13 Bankruptcy?

If you want to keep your secured property, you must pay 100% of the debts secured by a tax lien, 100% of the arrearage amount, and pay back a small portion of the debt monthly. You also need to pay 100% of priority debts, including spousal and child support.

Why Should You Hire a Bankruptcy Attorney?

A bankruptcy lawyer can protect you from harassment by collection agencies and debtors. We can call your lenders and get them to stop calling and pressuring you into repaying debt. We can also help you stay on top of everything required for your application and offer sound legal advice.

Bankruptcy attorneys can share their knowledge and experience with you. They can also coach you to answer questions in court, ensuring that you achieve your desired outcome.

Our bankruptcy lawyer at Siddons Law Firm has filed thousands of bankruptcy cases and helped clients throughout Media, PA get back on their feet financially. Contact Michael Alan Siddons today for a free consultation.

Contact Our Experienced Bankruptcy Attorneys in Media, Pennsylvania  

If missed calls from lenders, late fees, or piling debts are causing you sleepless nights, you have come to the right place. Here at Siddons Law Firm, Michael Alan Siddons can help you explore the different bankruptcy options available to you and work on your case in a way that advances your interests.

He has the knowledge, experience, and qualifications needed to work on your case; therefore, you can rest easy knowing that we will take your financial situation on an upward spiral. We are committed to helping you find real solutions to financial issues, so feel free to contact us at 610-890-5947 today for a free consultation!