Chicago Bankruptcy Lawyer Joseph Wrobel Breaks Down the Differences Between Chapter 7 and Chapter 13 Bankruptcy to Let You Decide the Best Way to a Fresh Financial Start
Chapter 7 bankruptcy and Chapter 13 bankruptcy are two different forms of personal bankruptcy that individuals can file for in the United States. Here are some commonly asked questions about the differences between Chapter 7 and Chapter 13 bankruptcy:
Q: What is Chapter 7 Bankruptcy?
A: Chapter 7 bankruptcy is also known as “liquidation” bankruptcy. This type of bankruptcy involves the liquidation of assets to pay off debts. In most cases, this means that the bankruptcy trustee will sell off non-exempt assets and use the proceeds to pay off creditors. Chapter 7 bankruptcy is often a good option for people who have significant unsecured debt, such as credit card debt, medical bills, or personal loans.
Q: What is Chapter 13 Bankruptcy?
A: Chapter 13 bankruptcy is also known as “reorganization” bankruptcy. This type of bankruptcy involves creating a repayment plan to pay off all or a portion of the debt for three to five years. The repayment plan is based on the debtor’s income and expenses, and it must be approved by the bankruptcy court. Chapter 13 bankruptcy is often a good option for people who have significant secured debt, such as a mortgage or car loan, and want to keep their assets.
Q: What are the Eligibility Requirements for Chapter 7 Bankruptcy?
A: To be eligible for Chapter 7 bankruptcy, you must pass the “means test,” which is a calculation of your income and expenses. If your income is below the median income for your state, you automatically pass the means test. If your income is above the median income, you may still be eligible for Chapter 7 bankruptcy if you pass a more detailed calculation of your income and expenses. Additionally, you cannot have filed for Chapter 7 bankruptcy in the past eight years or Chapter 13 bankruptcy in the past six years.
Q: What are the Eligibility Requirements for Chapter 13 Bankruptcy?
A: To be eligible for Chapter 13 bankruptcy, you must have a regular income and unsecured debts of less than $419,275 and secured debts of less than $1,257,850. You must also be able to create a repayment plan that is approved by the bankruptcy court. Additionally, you cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
Q: What Happens to My Assets in Chapter 7 Bankruptcy?
A: In Chapter 7 bankruptcy, the bankruptcy trustee will sell off non-exempt assets to pay off creditors. However, many assets are exempt, meaning they are protected from liquidation. Exempt assets can vary depending on your state’s laws but may include things like a certain amount of equity in your home, a certain amount of cash or bank account balances, and personal property such as clothing, furniture, and tools.
Q: What Happens to My Assets in Chapter 13 Bankruptcy?
A: In Chapter 13 bankruptcy, you can keep all of your assets, including any non-exempt assets. However, you will need to create a repayment plan that includes paying off any non-exempt assets for three to five years.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, is designed to help people with significant unsecured debt, such as credit card debt, medical bills, or personal loans. In a Chapter 7 bankruptcy, a trustee is appointed to oversee the liquidation of your non-exempt assets, which are sold to pay off your creditors. The remaining debt is then discharged, meaning you’re no longer legally obligated to pay it.
One of the key advantages of Chapter 7 bankruptcy is that it’s relatively quick, usually taking only a few months to complete. Additionally, most people who file for Chapter 7 bankruptcy can keep their exempt assets, which can include things like a certain amount of equity in their home, a certain amount of cash or bank account balances, and personal property such as clothing, furniture, and tools.
However, not everyone is eligible for Chapter 7 bankruptcy. To qualify, you must pass the “means test,” which is a calculation of your income and expenses. If your income is below the median income for your state, you automatically pass the means test. If your income is above the median income, you may still be eligible for Chapter 7 bankruptcy if you pass a more detailed calculation of your income and expenses. Additionally, you cannot have filed for Chapter 7 bankruptcy in the past eight years or Chapter 13 bankruptcy in the past six years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as “reorganization” bankruptcy, is designed to help people with significant secured debt, such as a mortgage or car loan, who want to keep their assets. In a Chapter 13 bankruptcy, you create a repayment plan to pay off all or a portion of your debt for three to five years. The repayment plan is based on your income and expenses, and it must be approved by the bankruptcy court.
One of the key advantages of Chapter 13 bankruptcy is that you can keep all of your assets, including any non-exempt assets. Additionally, if you’re behind on your mortgage or car payments, a Chapter 13 bankruptcy can give you time to catch up and avoid foreclosure or repossession.
To be eligible for Chapter 13 bankruptcy, you must have a regular income and unsecured debts of less than $419,275 and secured debts of less than $1,257,850. Additionally, you cannot have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
Which Type of Bankruptcy is Right for You?
Determining which type of bankruptcy is right for you will depend on your circumstances. At Joseph Wrobel, Limited, our goal is to put you in the driver’s seat to determine the best way to get rid of debts and get a fresh start. If you have significant unsecured debt and little in the way of assets, Chapter 7 bankruptcy may be a good option. This type of bankruptcy allows you to discharge most or all of your unsecured debt and can give you a fresh start. However, it’s important to note that not everyone is eligible for Chapter 7 bankruptcy, as you must pass the means test and meet other requirements.
If you have significant secured debt and want to keep your assets, Chapter 13 bankruptcy may be a better choice. This type of bankruptcy allows you to create a repayment plan to pay off your debt for three to five years. The repayment plan is based on your income and expenses and must be approved by the bankruptcy court. One of the key advantages of Chapter 13 bankruptcy is that you can keep all of your assets, including any non-exempt assets.
It’s important to weigh the pros and cons of each type of bankruptcy and to consider your circumstances before making a decision. While Chapter 7 bankruptcy can give you a fresh start by discharging most or all of your unsecured debt, it can also result in the loss of non-exempt assets. On the other hand, while Chapter 13 bankruptcy allows you to keep all of your assets, it requires you to make regular payments for three to five years. Consulting with an experienced bankruptcy attorney can help you determine which type of bankruptcy is right for you.