What are some main differences between Chapter 7 and Chapter 13 Bankruptcy_

The idea and thought of having to file for bankruptcy can be overwhelming, staggering and formidable.  It can be all-encompassing to someone not familiar with the process and the available options.  Once you understand your choices it can be a complete relief knowing there is a process to resolve your situation with a light at the end of the tunnel.  Understanding your options can alleviate any tension or confusion that you feel and will help you make the right decision for you and your family.  This article will discuss the differences between Chapter 7 and Chapter 13 bankruptcies, the two most commonly filed types of bankruptcy.

Chapter 7 bankruptcy is the most common type of bankruptcy filed for individuals and it can usually be completed in less than six months. It’s the best option for someone wanting to start over and if you have little money left over after paying your basic expenses. Chapter 7 is the most common choice for people who don’t own a home and have a limited income.  There are many advantages to filing for Chapter 7 bankruptcy.  The main advantage is debt forgiveness.  For most individuals, filing Chapter 7 means the bankruptcy discharge wipes out all of their debt.  Examples of the type of debt Chapter 7 can discharge are:  

  • Credit card debt
  • Medical bills
  • Personal loans
  • Unsecured debt
  • Unpaid utilities
  • Phone bills
  • Deficiency balances after a repossession or foreclosure
  • Judgements from unpaid credit card debt, medical bills or other unsecured debt.

Another advantage to Chapter 7 filing is the chance to rebuild your credit score.  While Chapter 7 bankruptcy does initially devastate your credit score it also gives you the opportunity to rebuild it over time. 

Relief from creditor harassment is another huge advantage to Chapter 7 bankruptcy.  Once you file Chapter 7, a stay is put in place to stop creditor harassment.  The automatic stay that is put in place means that the creditor is forced to communicate with your bankruptcy attorney.  This means that you are spared the incessant torment of phone calls regarding collection activity.  You are spared this harassment while your finances are sorted out within your bankruptcy case.  If a creditor violates the stay by continuing to harass you, your bankruptcy attorney can file a motion for sanctions with the U.S. Bankruptcy Court.  

The 2nd most common type of bankruptcy filing is Chapter 13.  Chapter 13 is also known as a reorganization bankruptcy, which gives you the chance to keep your property (including secured assets like your home and car).  Chapter 13 requires you successfully complete a court-mandated repayment plan that lasts between three and five years.  Chapter 13 may be the best option for you if you have a steady income and can pay your basic expenses but find it hard to make your debt payments.  One of the greatest advantages to Chapter 13 is the opportunity to avoid foreclosure.  If you are behind on your mortgage payments then Chapter 13 will give you the best opportunity to keep your home.  Chapter 13 will give you the chance to pay off secured (car loans) or non-dischargeable debts like tax debts or child support at a greatly reduced amount.  Chapter 13 also gives you the relief of having to have any contact with your creditors.  When your Montgomery bankruptcy lawyer files your case, you can get a court-appointed trustee to have direct contact with creditors thereby saving you the hassle of dealing with them.

Chapter 7 and Chapter 13 bankruptcies are two options available to help individuals who are unable to pay all their bills.  It provides a great opportunity for someone to free themselves of debt and get a fresh start financially in order to live a higher quality of life. 


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