16th Jan 2016
Nobody wants to file for bankruptcy, but in some cases it truly is the best option to help you get out from under crushing debt and make your way back to financial health. There are two different types of personal bankruptcy that apply to individuals and families, and understanding the difference between the two—Chapter 7 and Chapter 13—can ensure that you get the best possible situation going through either.
The primary determining factor that divides Chapter 7 filers from Chapter 13 is income level. You must fall below a specific income level to be eligible for Chapter 7 bankruptcy, which is generally simpler and will be completed faster than Chapter 13. This is also the majority of all bankruptcy cases—about 7 in 10—so many people are more familiar with Chapter 7. Generally Chapter 7 filers are those with limited income who want to erase unsecured debts like credit cards or medical bills by selling off non-exempt assets (a liquidation), while Chapter 13 is for someone with more disposable income who will be able to keep existing assets and repay some of their loans over time (a reorganization).
Some of the other qualifications for each loan can be a little confusing, so if you think that bankruptcy might be the best (or only) option for you, it’s important to consult a personal bankruptcy attorney in Utah to help you decide.
Chapter 7 bankruptcy will generally stipulate that you must return your house or car to your creditor, while Chapter 13 might allow you to keep your vehicle and remain in your home as long as you stick to a previously outlined payment schedule.
Other support debts, such as alimony, child support, and student loans cannot be discharged in either Chapter 7 or Chapter 13 bankruptcy and if they are not paid off by the end of the bankruptcy proceedings you will still owe the remaining balance. Nonsupport debts, even as part of a divorce or property settlement, could be discharged or erased if you can show that you are unable to pay them or the benefit of eliminating the debt outweighs the detrimental effect to the other party.
If you have previously filed for Chapter 7 bankruptcy you will not be able to file for it a second time, but if your prior bankruptcy was Chapter 13 you can re-file for another Chapter 13 or for a Chapter 7 in the future.
The timeline for each of these loans is also different—Chapter 7 takes only about three to five months to complete, while Chapter 13 might take as long as three to five years while you complete the payment plan. The former is a quick option to discharge most debts and get a fresh start, while the latter is a better option to be able to keep existing valuable property while you get caught up on outstanding debts.