Filing for Bankruptcy The Differences Between Chapter 7 and Chapter 13

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When large debts are too much to bear, filing for bankruptcy might be beneficial for many people. There are two main types of bankruptcy in the United States: Chapter 7 and Chapter 13. The type of case you file depends on a lot of factors, including your income, debts and assets. Before filing a bankruptcy case, you should consult a lawyer who specializes in the finer points of this complex process. Filing for bankruptcy can be stressful and confusing, but it’s beneficial to know the main difference between the two major types before exploring your best options.

  • Chapter 7
    Chapter 7 bankruptcy can be filed for either individuals or business entities. The main qualification for Chapter 7 has to do with your income and assets: namely, you have to have little to no disposable income or assets to speak of. If you make more than a certain amount of money, you will not qualify for Chapter 7. This type of bankruptcy claim involves liquidation, which means it will wipe out credit card debt and unpaid medical bills. The fee to file this type of case is $335. When clients use a bankruptcy lawyer for a Chapter 7 case, their success rate is over 95%. Typically, the process takes a matter of months, so you can quickly get rid of your debts and have a clean slate.
  • Chapter 13
    Unlike Chapter 7 bankruptcy cases, Chapter 13 claims can be filed only by individuals or sole proprietors. Instead of liquidation, Chapter 13 involves reorganization, and is meant for those with regular incomes who can pay back part of what they owe through a payment plan. This type of bankruptcy claim is ideal for those who need to get caught up on monthly payments they can afford, like for their mortgage, car or child support fees. At $310, it’s also a little less expensive to file than Chapter 7. With help from a legal representative, the success rate for this type of bankruptcy is 55%. This process can sometimes take several years, but you can keep your property.

The process of declaring bankruptcy can be complicated, but a bankruptcy attorney can help you decide which type of bankruptcy case you should file, or whether you should file at all. Being familiar with the basics is important, but because filing for bankruptcy without an attorney has low rates of success (60% for Chapter 7 and .04% for Chapter 13), it’s always advisable to consult with a legal team before moving foward.

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