What are the main differences between Chapter 7 and Chapter 13 bankruptcies?

Over the past decades, managing their personal finances has continued to become more difficult for many people across the country. As the costs of housing, health care, education and basic living expenses continue to rise, the pay has not kept pace. This made it difficult for these people to pay their bills and not go into debt. For those who are heavily in debt, the most effective way out might be to file for bankruptcy.

When you go to file for bankruptcy, the two main options are to file Chapter 7 or Chapter 13. In general, a Chapter 7 bankruptcy is considered a complete liquidation while a Chapter 13 is a personal reorganization of debts. If you are considering filing for bankruptcy, it is very important to understand the differences between these two options as they may make one option a better decision for you based on your situation.

What are the main differences between Chapter 7 and Chapter 13 bankruptcies
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Eligibility criteria

Certain eligibility requirements must be met when you go to file for bankruptcy. For those who wish to file Chapter 7, you can be an individual or a business. To benefit from it, you will need to pass the resource test. This test is based on your income and the size of your household. The means test is used consistently across the country, but income levels for the test will vary.

If you are not able to pass the means test when you want to file for personal bankruptcy, the other option is to file Chapter 13. To qualify, you will need to have less than $ 420,000 in unsecured debt. In addition, this form of bankruptcy is only available to natural or structured persons as sole proprietors.

Impact on debts

The main reason people will file for bankruptcy is that they will want their personal debts to be eliminated, reduced or restructured. When a person files for Chapter 7 bankruptcy, all of their qualifying personal debt will usually be wiped out. This generally includes credit cards and personal loans.

With Chapter 13 bankruptcy, the focus will be more on restructuring your personal debt than eliminating it. This may include changing your payment plans, consolidating debt, granting interest rate relief, or deferring payments for a period of time. Unsecured debts can be partially canceled if you agree to a certain repayment plan.

Impact on assets

The impact on your personal assets also varies widely between Chapter 7 and Chapter 13. In most cases, if you file Chapter 7 bankruptcy, your personal assets will be liquidated. Any bank or investment accounts you have will be closed and the balances paid to your creditors. However, you will be able to keep some personal assets, including a modest amount of vehicle equity, clothing, business tools, and your retirement accounts.

When you go to file for Chapter 13 bankruptcy, you will likely be able to keep all or most of your assets. If you have the cash to do so, you may need to make a good faith payment as part of your repayment plan. You may also be required to sell certain valuables or other assets to pay off your debts. If you are looking to write off unsecured debt, there may be more pressure to liquidate your assets to pay off balances.

Process speed

The speed of a Chapter 7 bankruptcy is generally fast. Normally from the time you deposit until the time it is finalized, it won’t take more than 6 months. A Chapter 13 process will take much longer. Paid debts usually won’t happen until you complete the required repayment plan, which can take up to five years.

Credit impact

One of the downsides to consider with either bankruptcy option is the impact it can have on your credit report and your history. With bankruptcy on your record, obtaining loans and credits can be difficult for a while. With a Chapter 7 filing, bankruptcy will stay on your credit report for up to 10 years. With Chapter 13, it will only stay on your report for 7 years. However, despite the impact on your credit, bankruptcy can still be the best long-term solution for those who want to repair and rebuild their personal financial situation.

Filing for bankruptcy can be a good financial option for anyone with growing debt and in need of a new financial start. For those considering bankruptcy, it is very important to have legal representation on your side. A Indianapolis bankruptcy attorney, like Jerry E Smith, can provide a range of services that will help keep the process running smoothly. This will include consultations and help you determine which bankruptcy option is best based on your situation. They can then help you with all the files and negotiations with the creditors to make sure the process goes smoothly and you get the best possible outcome.

Interesting related article: “What is a creditor?” “

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