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Photo of attorneys Shelley Slafkes and Bruce Levitt
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Chapter 7 vs Chapter 13 Bankruptcy: Which One is Best for You?

On Behalf of | Feb 26, 2021 | Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

If you’re drowning in debt, filing for bankruptcy may be the best solution for getting your finances back on track. You may wonder, however, what type of bankruptcy is right for you. While there are other kinds of bankruptcy, most individuals file under either Chapter 7 or Chapter 13.

Both of these options can help you eliminate most of your debt and give you a fresh start. To decide which kind of bankruptcy will work best in your situation, you should consider the benefits, drawbacks, and qualification requirements of each chapter.

This guide will help you have a better understanding, but the best way to ensure you’re filing the right type of bankruptcy is to consult with an experienced bankruptcy attorney.

Chapter 7

When you file under Chapter 7, a bankruptcy  trustee  is appointed to manage your estate and administer your bankruptcy case. One of the main benefits of Chapter 7 is that you can eliminate, or discharge, most of your debt. Some assets may be sold or liquidated, but you can protect most types of property through exemptions. For example, property that you need for work or maintaining a household is exempt, as well as retirement accounts. There are also exemptions for motor vehicles and homes up to a certain value, so you’ll likely be able to keep your car and house. The overwhelming majority of people who file a Chapter 7 bankruptcy keep everything that they own.

Another advantage is that a Chapter 7 filing takes only about 3 to 4 months to complete, giving debtors a quick and efficient way to start fresh. If you’re facing foreclosure, filing for bankruptcy also puts an automatic stay on the proceedings. Because a Chapter 7 bankruptcy can be completed quickly, this stay will usually only give you a short reprieve.

Before your Chapter 7 filing is approved, you must first pass a “means test.” If your income doesn’t exceed the median income in your area, you will automatically qualify. If your income is higher than the median, you may still qualify if your monthly financial obligations leave you with little disposable income.

Chapter 7 is ideal for people who have a lot of unsecured debt and don’t have many assets or equity in their property. If you don’t fall into this category or your income is too high to qualify, you may want to consider filing under Chapter 13.

Chapter 13

When you file under Chapter 13, you must submit a plan to the court to restructure, or reorganize, your debt over a 3 to 5 year period. In Chapter 13, you don’t have to liquidate any of your assets and may be allowed to repay only a portion of what you owe to your creditors.

If you have many assets or a significant amount of equity in your home or car, Chapter 13 allows you to keep everything as long as you pay the value of your assets under the repayment plan. At the end of your repayment period, most of the unsecured debt that remains can be discharged.

As in Chapter 7, filing for bankruptcy under Chapter 13 puts an automatic stay on any foreclosure proceedings against you. Because Chapter 13 proceedings last 3 to 5 years, this type of filing gives you much more time to get current on your mortgage and keep your home.

To file under Chapter 13 and get your repayment plan approved by the court, you must show that you have sufficient disposable income to make the monthly payments. You must also demonstrate that your debts don’t exceed the legal limit. Currently, the limit for unsecured debt is $419,275 and $1,257,850 for unsecured debt.

If you have enough steady income to qualify and want to protect valuable assets and equity in your property, Chapter 13 may be right for you.

Consult an Experienced Bankruptcy Attorney Today

Making the decision to file for bankruptcy can be difficult. However, bankruptcy can give you the opportunity to free yourself from debt that may be overwhelming.
If you are not sure whether Chapter 7 or Chapter 13 would be best in your situation, an experienced bankruptcy lawyer can help you analyze your financial options and protect your interests.
To schedule a free consultation, please call Levitt & Slafkes at 973-323-2953 or contact us online to schedule an appointment.

We are proudly designated as a debt relief agency by an Act of Congress.  We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only.  Nothing should be taken as legal advice for any individual case or situation.