You have reached financial hardship and are wondering whether bankruptcy is the right debt relief option for you.
If you’re in a quagmire as to filing for either Chapter 7 or Chapter 13 bankruptcy, then you might want to educate yourself on the differences to prevent making the wrong decision. Some things to watch out for before making your choice are:
- Credit
- Duration
- Cost
Although many debtors find the Chapter 13 bankruptcy helpful, it has not been beneficial to some. To help simplify your situation, you should use the Chapter 7 vs Chapter 13 calculator to carry out an estimate of its cost and duration as it pertains to your situation.
Overview of Chapter 7 and Chapter 13 Bankruptcy
We’ve held discussions with a lot of people having one issue or the other with filing for Chapter 13 bankruptcy discharge. And one thing we’ve noticed is that numerous people have regrets for opting for this bankruptcy type. Most of this discontent happens because debtors don’t know this information:
- Most attorneys have payment plans for Chapter 7 bankruptcy
- The process of applying for Chapter 13 bankruptcy can be very expensive
- You may not lose your home and vehicle when you file for a Chapter 7 bankruptcy discharge
As such, we’re writing this article to inform you of the differences that exist between a Chapter 7 bankruptcy discharge, and a Chapter 13 discharge. This will undoubtedly help you make an apt decision. We’ll answer a lot of questions in this article, so feel free to navigate your way to the most relevant one:
What is Chapter 7 Bankruptcy?
Any bankruptcy a debtor files under the Chapter 7 of the bankruptcy code is called a Chapter 7 bankruptcy. Here assets that are not exempted from being liquidated are used to repay the creditors, however, that hardly happens. Nevertheless, the risk of loss still exists if you have significant assets not covered by exemptions.
Those that can get this type of bankruptcy discharge are businesses individuals with business debts and those that meet certain income requirements. The only way to qualify for Chapter 7 bankruptcy as an individual is by meeting its strict income requirements.
The requirements for applying for a Chapter 7 does not apply to individuals with business debts like co-signed business loans, personal guarantees for business debts, and sole proprietor debts. These requirements don’t apply to debt-related businesses, sole proprietor loans, and co-signed business loans. If a Business files for a Chapter 7 discharge, then such businesses are liquidated.
What is Chapter 13 Bankruptcy?
In the simplest definition, Chapter 13 bankruptcy is a type of bankruptcy that helps debtors to restructure their payment plans. It’s known as a wage earner’s plan. It’s limited only to individuals with a proven, stable income. If you’re self-employed or you earn the bulk of your income from a business, you can also file for this bankruptcy type. Albeit, businesses themselves can’t file for a Chapter 13 as there’s an alternative that’s called Chapter 11.
If you’re filing for a Chapter 13 bankruptcy plan, you may be given a loan term of 60 months. But you can propose a 36-month plan if your income falls below the state’s median income. The exact amount you’ll pay is dependent on a wide range of factors that include your expenses, assets, income and debts. In some instances, financial transactions that are recently made may affect the amount you’ll pay in your Chapter 13 plan.
If you’re not interested or unwilling to file for a Chapter 7 bankruptcy discharge, you might want to use Ascend’s Chapter 13 calculator to estimate whether it’s a more worthy alternative.
The Chapter 13 bankruptcy process is similar from state to state. That said, the bankruptcy attorney cost of Chapter 13 bankruptcy in Alabama may be different than the cost to file Chapter 13 bankruptcy in Texas.
Chapter 7 vs Chapter 13 calculator
If you want a tool that can help you make a Chapter 7 vs. Chapter 13 bankruptcy comparison to know which suits you best, then you might find our Chapter 7 vs. Chapter 13 calculator interesting enough. This calculator does the following:
- It estimates your chances of qualifying for Chapter 7 bankruptcy
- It provides you with an estimated Chapter 13 payment plan
- It helps you get acquainted with the fees and cost estimates for both bankruptcy types
- It elucidates the pros and cons of both Chapter 7 and Chapter 13 bankruptcy
- It helps you to better understand the available alternatives
- It provides financial resources that can help you in your quest for a bankruptcy discharge.
Pros and Cons of Chapter 7 Bankruptcy
Bankruptcy, just like other debt relief methods, has its pros and cons. Some merits and demerits of filing for a Chapter 7 bankruptcy discharge include the following:
- One of the quickest ways to get a bankruptcy discharge is by filing for a bankruptcy discharge. A good majority of no-asset Chapter 7 cases are closed and discharged within six months of filing for bankruptcy.
- This type of bankruptcy allows debtors to get a discharge without paying any portion of the unsecured debts.
- Chapter 7 bankruptcy is often a cheap form of debt relief.
- A debtor can easily get rid of debts by securing their assets to a creditor; irrespective of whether the debt is lesser or more than the owed sum. The creditor can’t attempt to collect the remaining amount owed once the property has been surrendered.
- Properties not covered by a bankruptcy exemption may be liquidated by the bankruptcy trustee.
- You may still lose your car, home or other assets in Chapter 7 bankruptcy
- Chapter 7 bankruptcy does not discharge all debt types. Debts not discharged in a Chapter 7 bankruptcy case include student loans, child support, tax debts, and alimony.
Pros and Cons of Chapter 13 Bankruptcy
There are numerous pros and cons with Chapter 13 bankruptcy that you might want to first consider before choosing a preferred bankruptcy type. Some of those pros and cons entail the following:
- Chapter 13 bankruptcy cases don’t prevent property repossessions and foreclosures. Debtors are often required to make auto-loan and mortgage payments in the course of a Chapter 13 bankruptcy repayment plan,
- In Chapter 13 bankruptcy, attorneys often charge a high fee, however, there are payment plans to help spread the payment.
- Most Chapter 13 bankruptcy applicants are committed to a 60-payment Chapter plan.
- Past due support payments and old tax debts can be added to your Chapter 13 payment plan.
- Some assets that are at risk of being liquidated in a chapter 7 bankruptcy are protected by Chapter 13 bankruptcy. However, non-exempt equity in your asset may increase your Chapter 13 payment amount significantly.
Many people ask the question, “Is Chapter 13 worth it” due to the cost and length of time.
Factors to Consider Before Choosing Chapter 7 or Chapter 13 Bankruptcy
There are lots of things to consider before filing for either Chapter 7 or Chapter 13 bankruptcy.
Bankruptcy Means Test Income Requirements
Before choosing either Chapter 7 or Chapter 13 bankruptcy is somewhat difficult. To do that, the most important factor is your monthly income. It’s important that you first meet the income requirement before getting a discharge, and one of those requirements is the Chapter 7 Means Test. The median income for the means test is different by state. For example, the California bankruptcy means test may have different requirements than the Florida bankruptcy means test.
In an instance where your mean income is above your median income, then it’s best to file for Chapter 13 Bankruptcy.
Property and Assets
Chapter 7 Bankruptcy exemptions only help to protect some of your assets. Any asset that is not protected by the exemption will be liquidated during a Chapter 7 bankruptcy case. However, a chapter 13 bankruptcy case can help you keep that property when you negotiate for a higher bankruptcy monthly repayment.
Foreclosures and Repossessions
If you fell behind on your mortgage payments, filing for Chapter 7 may not help your situation as you’ll have to either catch up with payments, refinance your loan, or request a modification of your loan term. A Chapter 13 bankruptcy allows you to keep your assets. For example, you can file bankruptcy and keep your house and keep your car often in a Chapter 13 bankruptcy.
Likewise, if repaying automobile loans becomes challenging, then Chapter 7 may not be the way out. The creditor may still require that you make full payments, and Chapter 7 cannot help you here. If the car’s worth less than what you owe, then it’s possible to reclaim your car by making full debt payment.
You can spread out your car payments in a Chapter 13 case to reduce the debt burden on your income. If you’ve owned a vehicle for more than 910 days before filing for a Chapter 13 bankruptcy, you can use that car to cram down the amount owed if it’s worth less than the loan payoff.