Bankruptcy: Chapter 7 vs Chapter 13
By Space Coast Daily // March 5, 2019
Ever wonder what filing for bankruptcy is really like?
Too many people have little experience with the difficulties and logistics behind bankruptcy beyond a game of Monopoly. And the truth is, bankruptcy is a complex task, and filing means understanding the terminology, scope, and the process of making things right with creditors.
Luckily, the bankruptcy system is designed in such a way to make the process easier to understand through a series of chapter designations.
Houston bankruptcy attorney Jed Shaw, and others make it easy to make your way through the bankruptcy process.
As an individual, there are two primary types of bankruptcy you can file for: Chapter 7 and Chapter 13. Here’s what you need to know about either, and which could benefit you the most.
Chapter 7: Total Liquidation
Chapter 7 is often considered to the simplest and easiest forms of bankruptcy–although you may not be particularly interested in the total personal cost of the process.
The easiest way to remember what Chapter 7 does for you is to remember that Chapter 7 totally exonerates you from debt in the form of total liquidation. Liquidation involves completely sacrificing all of your property and allowing them to be sold.
The liquid cash is then transferred over to creditors, and the slate is wiped clean. If you need to get out of debt as quickly as possible, this is going to be your best bet.
And to get more specific, here’s what else you need to know about Chapter 7:
- There are strict income limits. If you make too much money or have too many assets valued at too high a price, you will not be able to file for Chapter 7.
- Individuals benefit the most. If you run a business or want to file a business under Chapter 7, the business will be dissolved completely.
- There is no repayment plan. After liquidation has been completed, the bankruptcy process ends and you begin again with a clean slate.
- Almost all property will be liquidated. Aside from essentials, such as a home or a car, you will lose most assets during this process.
Like mentioned above, Chapter 7 bankruptcy is the quickest and simplest method for bankruptcy, and it’s going to be the best for individuals in lots of credit card debt, but won’t work for those with lots of assets. In that case, a Chapter 13 filing may be best.
Chapter 13: Repayment Plans
If you have too much cash flow or fail to pass the means test for Chapter 7 bankruptcy, then you may want to file for a Chapter 13 bankruptcy plan.
Just as Chapter 7 bankruptcy can be described as a total liquidation of assets, Chapter 13 can be remembered as a type of repayment plan. This process usually involves three to five years of payment to a trustee, who will then pass the money along to creditors that are owed.
Chapter 13 is also more expensive than Chapter 7, as attorney fees will need to extend as long as the period of bankruptcy. Chapter 13 may be expensive, but it also allows individuals and organizations to continue on with their lives and keep most of their assets.
Chapter 13 also comes with the following benefits:
- It benefits individuals with considerable income. So long as your secured and unsecured income stays below the federally designated limits.
- You do not deal with creditors directly. An impartial trustee will be your point of contact and aid you in repayment.
- You can continue with your life. Payments will be adjusted to your income to help you repay your debt.
- It benefits companies and sole proprietorships. If you run a business and need to keep your doors open during the process, this is the plan for you.
Ultimately, the best way to manage debt is going to be to avoid bankruptcy and see about deferments repayment plans, and other ways to get out of debt. You also need to account for the type of debt you have, as it greatly affects the way you can repay it.
The truth is that there is no clear distinction between Chapter 7 and Chapter 13 bankruptcy that makes one better than the other.
It’s highly recommended that you talk to a licensed and competent financial advisor to ensure that the type of bankruptcy you’re filing for is the type of bankruptcy that best benefits you and your situation.
Bankruptcy doesn’t have to be a death sentence to your financial history, either. With enough hard work and dedication, bankruptcy can be just another step forward for your personal finances or business. Just be sure to file the right Chapter along the way.
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