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Monday, July 20, 2020

What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

There is a pervasive misconception in society that conflates bankruptcy with an end to financial well-being. It is, in fact, the opposite. For those finding themselves in difficult financial situations, bankruptcy can provide a fresh start. Filing bankruptcy should not be viewed as an ending, but a beginning of a chance to build a solid financial future. Before you file bankruptcy, it is important to evaluate your own situations and your goals. This will help guide you towards what type of bankruptcy is best. Most individuals file Chapter 7 bankruptcy or Chapter 13 bankruptcy. There are important differences between these two types of bankruptcy filings that you should be aware of if you are considering bankruptcy.

What is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

There are several key differences to note between Chapter 7 and Chapter 13 bankruptcy. For instance, Chapter 7 bankruptcy is liquidation bankruptcy and Chapter 13 is reorganization bankruptcy. This means that Chapter 7 bankruptcy will clear most of your general unsecured debts. These debts include things like credit cards and medical bills. A bankruptcy trustee is appointed to administer your case and is empowered to sell non-exempt property in order to help your creditors recoup some of your outstanding debt. With Chapter 13 bankruptcy, you will get to keep all of your property, but will have to agree to and comply with a structured repayment plan. The amount you will be obligated to pay back to your creditors will depend on several factors such as your income as well as the type of debt you are carrying.

Another major difference in Chapter 7 versus Chapter 13 bankruptcy relates to who qualifies for filing. Only those who fall below a set income level are eligible to file Chapter 7 bankruptcy. If you make too much money to qualify for Chapter 7 bankruptcy, you may still file under Chapter 13. Chapter 13 bankruptcy is designed for those who have regular monthly income that allows them to cover basic expenses as well as comply with a bankruptcy repayment plan. Chapter 7 bankruptcy is designed for those low-income individuals who are carrying debt and have limited assets.

There are benefits and limitations to both Chapter 7 and Chapter 13 bankruptcy. Chapter 7 is generally considered much simpler than Chapter 13. There is also the benefit that debt is cleared without the need of a repayment plan. Chapter 13 bankruptcy, however, has the benefit of giving the debtor the opportunity to become current with mortgage payments. It also can work best for debtors who are carrying non-dischargeable debt they want to become current on in the next few years, such as child support arrears.

New Jersey Bankruptcy Attorneys

If you are finding it difficult to manage your debt, you may want to consider bankruptcy. Bankruptcy is available to provide relief to those struggling in difficult financial situations. Talk to the trusted bankruptcy attorneys at The Cassidy Law Firm. We can answer your questions and help put you on the path to a brighter financial future. Contact us today.

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