The Difference Between Chapter 7 & 13 Bankruptcy
If you’re in a dire financial situation, having a discussion about filing for bankruptcy with a lawyer in Wilmington is one of the smartest things you can do. Discussion is the best way to determine if bankruptcy is the right tool for helping you regain control of your finances.
While an experienced lawyer will be able to answer any questions you may have about bankruptcy, it’s possible to get a basic understanding of some key bankruptcy concepts prior to your consultation. One of those concepts is the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy. Although it’s natural to assume that both forms of bankruptcy are going to be confusing, the distinction between the two and their individual details is fairly straightforward.
Chapter 7 is a liquidation bankruptcy. Its goal is to wipe out unsecured debt like medical bills or credit cards. This is done by selling property that is not exempt from collection and then using what’s earned from the sales to pay back creditors.
Chapter 13 is a tool for reorganizing debt. The goal of reorganization is to get debt to a point where it’s manageable enough to be paid back over time. Although Chapter 13 doesn’t wipe away debt, it doesn’t require you to sell any property.
Both individuals and business entities can file for Chapter 7, while only individuals can file for Chapter 13. The main qualification for Chapter 7 is a monthly income that is less than your state’s median household income. For Chapter 13, eligibility requires unsecured debt of less than $383,175 or secured debt under $1,149,525.
When someone files for Chapter 7 bankruptcy, their debt is generally discharged in three to five months. Once the filing happens and the process starts, creditors can no longer call or attempt to collect. For a Chapter 13 filing, debt is gone after repayment is made. Depending on the specific plan, repayments generally take three to five years to complete.
Although completing Chapter 7 bankruptcy does require selling personal property, certain items are exempt from the process. People who file can exempt up to just under $23,000 worth of equity in their home. Insurance policies and retirement plans are usually protected. Also, depending on the specifics of a filing, jewelry and even cars up to a certain amount may not have to be sold. With Chapter 13 bankruptcy, people who file aren’t forced to sell their property.
Now that you have more insight into the differences between the two main types of bankruptcy, you can remain knowledgeable if you consult or file for bankruptcy with a lawyer in Wilmington. Keep in mind that, in many cases, individuals are eligible to file for either form of bankruptcy. As a result, it’s very useful to have the guidance of an experienced professional who can help you determine which one is the best fit for you.