When faced with the possibility of filing for bankruptcy, it is important to fully understand and survey all of your options. A trustworthy attorney is vital in helping you choose what type of bankruptcy filing works best for your individual situation. The team at Collins & Arnove can advise you in filing for either Chapter 7 or Chapter 13 bankruptcy by explaining the differences in each type of case. The chapter of bankruptcy for which you choose to file will depend on your income, assets, debts and financial goals. If you’re considering filing or just beginning your bankruptcy research, refer to this helpful guide outlining the differences between Chapter 7 and Chapter 13 bankruptcy. The following list will break down each chapter of bankruptcy by the areas in which they differ.
- Type of bankruptcy. Chapter 7 bankruptcy is considered liquidation, while Chapter 13 focuses on the reorganization of finances and assets.
- Type of filer. Both individuals and business entities can file for Chapter 7, but Chapter 13 bankruptcy is restricted to single filers only.
- Eligibility determinations. Those applying for Chapter 7 bankruptcy must have a disposable income low enough to pass the Means Test. Chapter 13 bankruptcy requires that filers have no more than $394,725 of unsecured debt or $1,184,200 of secured debt.
- Discharge process lengths. Chapter 7 bankruptcy quickly discharges in three to five months, while Chapter 13 will usually take three to five years. This time estimate is contingent upon the completion of all plan payments.
- Property disbursement. Chapter 7 filings allow a trustee to sell all nonexempt property to pay creditors. However, in Chapter 13 cases, debtors can keep all property, but they must pay creditors an amount equal to the value of their nonexempt assets.
- Lien stripping. Chapter 7 bankruptcy does not warrant removal of unsecured junior liens from real property through lien stripping. Contrarily, Chapter 13 does if all requirements are satisfied.
- Principal loan balance reduction. Once again, Chapter 7 bankruptcy denies the use of a loan cramdown to reduce the principal loan balance, while Chapter 13 allows it if all requirements are met.
- Benefits. Chapter 7 allows debtors to discharge quickly and get a fresh start. On the other hand, Chapter 13 allows debtors to retain their property and catch up on nondischargeable priority debt payments (mortgage, car, etc.).
- Drawbacks. The main drawback of Chapter 7 bankruptcy is that it does not provide a way for debtors to catch up on their missed payments to avoid things like repossession or foreclosure. Chapter 13 bankruptcy can be challenging because it requires debtors to pay a trustee monthly for three to five years, as well as requiring them to pay back a portion of their general unsecured debts.
Just as with every legal case, all bankruptcy filings are different. The outline above is not meant to serve as legal advice. Instead, it serves as a starting point and general explanation to help potential filers understand how these two types of bankruptcy differ. If you or someone you know is considering filing for bankruptcy, consult with the professional team at Collins & Arnove today. Visit us online here http://www.ntb.wpmudev.host/ or call for a free consultation 972-516-4255.
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