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What is the difference between Chapter 7 & Chapter 13 bankruptcy?

When you feel overwhelmed with debt, whether it comes from mounting medical bills or ballooning credit card statements, you start to think about your options. You want to stop getting harassing creditor calls and start fresh. Maybe filing bankruptcy might be your best move.

However, you are unsure if you should seek a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. What’s the difference between these different types of bankruptcy? How do you know which option might be best for you?

Chapter 7 bankruptcy

Chapter 7 is the most common type of bankruptcy. Through Chapter 7, you can have nearly all your debts discharged. Another advantage of a Chapter 7 bankruptcy is that you can complete it quickly, often within four to six months.

However, you will have to pass a means test to qualify for Chapter 7. If your income is too high, Chapter 7 will not be an option.  Also, a Chapter 7 bankruptcy will stay on your credit report for 10 years, impacting your ability to get future loans longer than a Chapter 13 bankruptcy. This doesn’t mean you won’t have credit; it’s just that if someone orders a credit report, they will see the bankruptcy. 

Chapter 13 bankruptcy

With a Chapter 13 bankruptcy, you can set up a payment plan to eliminate your debts within three to five years. You can avoid foreclosure on your home and having creditors repossess your vehicle. While Chapter 13 bankruptcy takes more time to resolve, a Chapter 13 remains on your credit report for only seven years instead of 10.  Just because you are in a payment plan doesn’t mean you are paying the debts in full.  Usually, you only pay a percentage of the debt. 

With either a Chapter 7 or Chapter 13 bankruptcy, you receive an automatic stay which prevents harassing creditor calls.

When you are considering bankruptcy, you should consult a bankruptcy attorney. An attorney can help you determine the best bankruptcy option for you and can file all the needed documents for your bankruptcy correctly. Which bankruptcy is best for you depends on your unique situation.

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