Types Of Bankruptcy: Chapter 7 Vs. Chapter 13
What Chapter Will I File Under for Bankruptcy?
When people talk about filing under Chapter 7 or Chapter 13, they are referring to the respective chapters of the U.S. Bankruptcy Code (11 USC). The chapter that a person files under is a personal decision; one must qualify for one or the other by taking a means test to determine their disposable income (monthly income minus living expenses). Depending on how much disposable income a person has, they can qualify for bankruptcy under Chapter 7 or Chapter 13, or they may not qualify at all. If the latter is the case, alternatives to bankruptcy may be available to help them find relief from their debt, such as debt consolidation or debt settlement.
Pros and Cons of Chapter 7 Bankruptcy
Chapter 7 of the Bankruptcy Code is most beneficial for individuals who have little to no income at all. This is usually due to loss of a job, catastrophic personal injury, severe illness, and other such matters. If a person’s disposable income is less than adequate to repay their debts even in part, they could be eligible for liquidation. By filing under Chapter 7, a person’s non-exempt assets are liquidated to repay the person’s debt, after which the remainder is discharged. The benefits of Chapter 7 include a fresh start and financial freedom. The downside is that you may lose your home and any non-exempt property or assets.
Pros and Cons of Chapter 13 Bankruptcy
Chapter 13 of the Bankruptcy Code is generally considered the better option for individuals and couples if they qualify. In order to be eligible for this type of bankruptcy, an individual must have a regular income that allows them to make some form of payments toward their creditor or lender, but not enough to make their payments in full.
By filing under Chapter 13, the consumer is able to establish a repayment plan over the course of 3-5 years, after which the remaining balance is discharged. The benefit of Chapter 13 is that you will not have to liquidate your assets and can keep your home, car, and other property. The downside is that you may still have to make expensive payments for several more years before your debt is finally resolved. To help decide which chapter is better for your current situation, you should speak to a Terre Haute bankruptcy attorney.