Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
“`html
Understanding Chapter 7 and Chapter 13 Bankruptcy: A Comprehensive Guide
Bankruptcy can be a daunting process, but understanding the differences between Chapter 7 and Chapter 13 bankruptcy can help you make informed decisions. In this article, we will explore how each type of bankruptcy works, their eligibility rules, and their impact on your credit. If you need expert mortgage services, don’t hesitate to contact O1ne Mortgage at 213-732-3074.
How Does Bankruptcy Work?
Bankruptcy is a legal process overseen by federal courts in the U.S. that protects individuals, couples, and businesses from financial ruin due to overwhelming debt. Upon successful completion of a Chapter 7 or Chapter 13 bankruptcy, many consumer debts are discharged, or eliminated.
Debts that can be discharged through bankruptcy include unpaid credit card bills, medical bills, and unpaid rent and utility bills. However, certain debts like unpaid alimony, child support payments, certain taxes, and federal student loans cannot be discharged.
Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
There are significant differences between Chapter 7 and Chapter 13 bankruptcy:
| Chapter 7 | Chapter 13 |
|---|---|
| Type of bankruptcy: Liquidation | Type of bankruptcy: Reorganization |
| Who can file: Individuals and business entities | Who can file: Individuals only (including sole proprietors) |
| Eligibility: Must pass the Chapter 7 means test | Eligibility: Cannot have more than $2,750,000 in combined secured and unsecured debt |
| Discharge time: Typically three to five months | Discharge time: Three to five years (following completion of a repayment plan) |
| Property: Trustee can sell all nonexempt property | Property: Debtors can keep property but must pay unsecured creditors an amount equal to the value of nonexempt assets |
What Are Eligibility Rules for Bankruptcy?
Eligibility for bankruptcy depends greatly on your income. If your current monthly income falls below the median for your community, you are eligible for Chapter 7 bankruptcy. If your income exceeds that amount, a means test is required to determine Chapter 7 eligibility.
You can qualify for Chapter 13 bankruptcy if you have regular income and your total secured and unsecured debts are less than $2,750,000 on the date you file for bankruptcy.
Will I Need to Repay All of My Debts in Chapter 7 and Chapter 13 Bankruptcy?
No. Neither Chapter 7 nor Chapter 13 insists on repayment of all outstanding debts. In Chapter 7, if you have assets of value in excess of the amount exempt by state and federal law, they are sold and the proceeds are distributed to your creditors. In Chapter 13, a repayment plan must be structured to enable full repayment of priority debts such as delinquent alimony and child support payments.
How Does Filing Bankruptcy Impact Credit?
Bankruptcy is recorded on your credit reports and will adversely impact your credit scores and creditworthiness the entire time it is on your report. Chapter 7 bankruptcy remains on your credit report for up to 10 years, and Chapter 13 stays there for up to seven years. The negative credit score impact of bankruptcy eases as time passes, but some lenders refuse to extend loans or credit to anyone with a bankruptcy entry on their credit report.
Is It Better to File Chapter 7 or Chapter 13 Bankruptcy?
If you qualify to file for either Chapter 7 or Chapter 13 bankruptcy, choosing which procedure to follow depends on your circumstances. If you have steady income and are behind on mortgage and/or car payments but wish to keep your home or car, a Chapter 13 repayment plan is your only option for preventing foreclosure and/or repossession.
Chapter 13 also has the benefit of expiring from your credit report more quickly than Chapter 7. Be aware, however, that failure to keep up with payments under a Chapter 13 plan can leave you with little option but eventually filing Chapter 7 anyway.
If you have relatively few assets, Chapter 7 can eliminate dischargeable debt relatively quickly—typically within three to five months of your filing date—so you can start rebuilding your finances fast.
How Do I Apply for Bankruptcy?
Before filing for either type of individual bankruptcy, you must obtain pre-bankruptcy credit counseling from a court-approved certified credit counselor. This counselor can help you sort out your options and provide guidance on the paperwork you must submit with your bankruptcy filing. All necessary forms are available to download free from the U.S. Bankruptcy Court website.
Filing for bankruptcy comes at a cost in the form of court fees. The fees for filing are $338 for Chapter 7 and $313 for Chapter 13. Additional administrative fees may apply if certain documents or addenda must be filed in connection with your case.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, it’s typically a good idea to hire a lawyer to help with your bankruptcy. Even minor mistakes or missing a deadline by a day could get your petition thrown out. Attorney fees can differ by locality, and also depend on the nature and complexity of your case.
The Bottom Line
Chapter 7 and Chapter 13 bankruptcy differ in their approaches to repaying your creditors and their ability to protect assets you may want to keep. While both can provide relief from crippling debt, they also do significant harm to your credit and ability to borrow money. With patience and care, you can rebuild your credit after bankruptcy.
If you need expert mortgage services, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey and find the best solutions for your needs.
“`
