Chapter 7 vs. Chapter 13: Which Bankruptcy is Right For You?

At Velazquez Consumer Law, LLC, we know that bankruptcy can be a terrifying thought. We like to remind all of our clients that it isn’t the end of the line and you don’t have to do it alone. Most clients starting to consider bankruptcy do not even realize that there are multiple types they can file for.

Bankruptcy is an option to help remove debt for those who have incurred crippling amounts of it. While there are negative consequences, it also offers a new start for those whose life has been destroyed by financial debt. It is more common than you might think. The two most accessible forms of bankruptcy for individuals are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy is sometimes known as liquidation bankruptcy. When you are approved for Chapter 7, your non-exempt property and possessions are sold off to repay your debts. The good thing is that most, if not all, of the property that people own is exempt, so it does not get sold off.  At the end of the process, your debts are discharged – wiped clean in sum total. The full process takes about five months.  

Chapter 13 Bankruptcy allows you to follow a court-created Payment Plan to pay off your debts. This plan is created around your income level and normally takes about five years to complete. Generally speaking, you may end up paying less than the initial amount of the debt but still having it wiped clean at the end of the process.

The first big difference between the two is that Chapter 7 is selective. Anyone can apply for Chapter 13 Bankruptcy. For Chapter 7 Bankruptcy, your income must be below a set level in order to be approved. Since it may be a more desirable option for some, it is also harder to get. If you have any significant income that can be put towards paying off your debts, it is much more likely you will end up being approved for Chapter 13.

The other main difference is the ability to keep your possessions. In a Chapter 13 Bankruptcy, you will be able to keep the equity in your home, car, and personal possessions as long as you are making payments on the loans. In Chapter 7, non-exempt property could be repossessed and sold to pay off your debt.  If you own a home with substantial equity, or depend on a vehicle with significant equity to get to work, Chapter 13 might be a much better option for you.

If you are considering bankruptcy as a solution to your financial issues, you don’t have to make any decisions by yourself. Contact Velazquez Consumer Law, LLC today to discuss your situation with someone who can help you decide what move to make next. We believe in dealing with your debt constructively and effectively. We have real legal solutions for real people!

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Velazquez Consumer Law

Central to our firm is the empathetic and compassionate service we give each client that allows us to fully understand your situation and goals. Above all, our responsive and hands-on approach to your legal issues yields actual results.

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