Bankruptcy 101: The Differences Between Chapter 7 and Chapter 13

If you are considering bankruptcy to help get you through a difficult financial situation, you will want to make sure you choose the right option. For most people, the decision will be between Chapter 7 and Chapter 13 bankruptcy, both of which can be very effective at helping people with their debt situations. Take a moment to learn about the major differences between these two options so you can decide which one is right for you.

Dealing with Your Debt

When going through bankruptcy, the biggest question is going to be what happens to your debt. With a Chapter 7 bankruptcy, almost all unsecured debt will be eliminated. This can include credit card debt, personal loans, and medical debt. With Chapter 13 bankruptcy, on the other hand, the principal of the debt may be reduced, or the interest rate could be cut, or you may even be given more time to repay the money.

What Happens to Your Assets?

Most people are concerned about what will happen to their assets that are used as security on debt. For example, your home, vehicles, and other similar items could be at risk if you can’t make your payments. With Chapter 7 bankruptcy, the courts may force you to liquidate your assets in order to repay your debt. While it isn’t too common to be forced into liquidating, the other option is to retain the debt on those items and keep paying for them. With Chapter 13, you will be able to keep all your assets, and the courts will help restructure the debt to make the payments more manageable.

How Long Does it Take?

When you go through Chapter 7 bankruptcy, you will typically be done with the entire process in about 4-6 months. Chapter 13 bankruptcy is a much longer process, often taking 3-5 years to fully emerge from bankruptcy protection. This is because the courts will be involved with the repaying process under Chapter 13 bankruptcy.

Qualifying for Bankruptcy

For many people, the biggest factor is determining which type they qualify for. If the courts believe that you will be able to repay your debt with a little help in the form of restructuring, they won’t likely let you seek a Chapter 7 bankruptcy. Instead, they will direct you to a Chapter 13 option so you can have the debt structured in such a way as to ensure you can make your monthly payments and repay the money you owe over time.

If you are considering bankruptcy, please contact the Law Office of Ray Garcia to go over all your options so you can make the best decision for your situation.