What is the Difference Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy?

Despite your best efforts, debt can become overwhelming. Bankruptcy may not be your first choice, but it never hurts to get the facts on all of your options before you make a decision moving forward. When considering personal debt relief options, it helps to understand the differences between a  Chapter 7 bankruptcy and a Chapter 13 bankruptcy.

Bankruptcy Overview

Bankruptcy is a legal mechanism that allows individuals to reduce or eliminate their debt, without fear of criminal charges or extreme civil measures. In essence, bankruptcy allows people in debt to get a financial fresh start. The Bankruptcy Code is extensive, having many chapters discussing how individuals and businesses must move through the bankruptcy process. For individuals, the most relevant chapters are Chapter 7 and Chapter 13, hence the terms “Chapter 7 Bankruptcy” and “Chapter 13 Bankruptcy.” Let’s discuss the differences between these two terms.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy enables individuals in debt to eliminate most types of debt, allowing them to have a truly financial fresh start. This is often what people envision when they think about bankruptcy. Often though, people wonder if they will lose everything they own in the process.

In most cases, the answer is “no” because the bankruptcy code allows for a broad range of exemptions. These exemptions allow individuals filing for a Chapter 7 bankruptcy to keep things like homes, cars, and cash. While there do exist federal and state exemptions, in Georgia, a person filing for Chapter 7 bankruptcy must use state exemptions, for the most part. When it comes to federal retirement and disability, for example, federal exemptions may apply. The bottom line is this – Chapter 7 bankruptcy allows you to eliminate most debt and keep certain assets. You will have a notation on your credit report for 7 years.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is for individuals who are currently having difficulty paying off their debts, despite having a steady income. In many cases, something catastrophic may have happened, such as a medical emergency, which placed an additional source of debt on the financial situation. For these individuals, the bankruptcy court allows them to create, often with the help of an experienced bankruptcy attorney, a financial repayment plan that is presented to the bankruptcy court. This repayment plan typically lasts 3-5 years and protects individuals from creditor harassment, lawsuits, and other collection activities. Chapter 13 also will be noted on your credit report for 7 years.

Chapter 7 and Chapter 13 Bankruptcy Requirements

In order to file a Chapter 7 or Chapter 13 bankruptcy, you must show proof that you have gone through credit counseling within 6-months prior to filing. In the case of a Chapter 7 bankruptcy, you must also pass a “means test” that determines whether your income exceeds the level legally necessary to qualify for Chapter 7 bankruptcy.

If you have filed for bankruptcy in the past, you must also show that you have not already filed in recent history.

Keep in mind that, although bankruptcy may remain on your credit report for 7 years, your credit score will go up after bankruptcy!

Get Help From an Experienced Bankruptcy Attorney

You don’t have to do this alone. Schedule a consult with a skilled Georgia bankruptcy attorney today. We can help you avoid common mistakes that could cost you time and a declined petition. Let us help you make a fresh start.

Posted in: Bankruptcy