The Difference Between Chapter 7 and Chapter 13 Bankruptcy

If you can qualify, Chapter 7 bankruptcy may provide more advantages to you than Chapter 13 bankruptcy.  But everyone’s circumstances are different, so you will need to know the advantages and disadvantages to Chapter 7 bankruptcy to determine if it is the best solution for you.

The key advantage of a Chapter 7 bankruptcy is that it allows you to emerge virtually debt-free within three to six months.  Your unsecured debt – which is debt not secured by collateral and typically includes credit card debt and medical debt – will be wiped out.

However, there are debts that do survive Chapter 7 bankruptcy, including mortgage and car payments and any other “nondischargeable” debts like student loans, child support or recent taxes.

In addition, the chances are greater that you will lose your home in Chapter 7 bankruptcy since it is a secured debt.  However, this is not always the case.  You can typically keep:

  • Your car, depending on its value
  • Your clothing
  • Necessary household furnishings and appliances
  • Personal effects
  • Jewelry, up to a certain value
  • Pensions
  • Life insurance proceeds, up to a certain value
  • Work-related tools or equipment

You will probably have to give up:

  • A second or vacation home
  • A second car
  • Stocks, bonds and other investments
  • Cash and bank accounts
  • Valuable collectibles or family heirlooms

Under certain circumstances, it is better to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy.  In fact, you may not have a choice.  Those who file Chapter 7 bankruptcy must pass a means test to qualify, and if you are in a high income bracket, you will likely not qualify.

If you have a home or car you want to keep, then Chapter 13 bankruptcy is also a better alternative for you.  If you’re delinquent in your payments but can make those up over time, a Chapter 13 filing will allow you to do this, while a Chapter 7 filing will not.

If you have other property you want to keep – say, a valuable art collection or family heirlooms – only Chapter 13 bankruptcy will allow you to keep this nonexempt property, since you repay your debts over time out of your income.

If someone has co-signed a loan for you and you wish to protect them, a Chapter 13 bankruptcy will keep creditors from going after your co-signer. 

If you have debts that would not be discharged in a Chapter 7 filing – student loans, child support, back taxes – then filing Chapter 13 will allow you to repay these over time as well.

For over 40 years, your legal team at Koenig|Dunne has counseled clients in thousands of initial consultations, and we are here to ensure that your initial consultation provides meaningful answers to the questions that matter the most to you.  Contact Koenig│Dunne today and schedule your free consultation with one of our experienced bankruptcy attorneys.

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