How does chapter 13 differ from chapter 7?
Bankruptcy can help you begin the process of restoring your financial health when the weight of mounting debt becomes too much to bear, explains our chapter 7 bankruptcy lawyer in Seminole FL. However, once you decide to pursue this route, you may wonder which bankruptcy option is right for you.
Defining Chapter 13 and Chapter 7 Bankruptcy
Chapter 13 bankruptcy eliminates some of your debt but requires you to repay the remainder of what you owe to your creditors over up to five years. Alternatively, Chapter 7 bankruptcy involves liquidation of your non-exempt asset to pay your creditors, though it does not require a payment plan. Regardless of which option works for your circumstances, bankruptcy will affect your credit, which you must gradually rebuild.
Key Differences Between Chapter 13 and Chapter 7 Bankruptcy
Although both types of bankruptcy can ease the strain of massive debt, various circumstances dictate which option you can pursue.
Chapter 13 will work for you if you have a steady income from which you can pay a secured debt according to a repayment plan approved and coordinated by a court-appointed trustee. Your repayment schedule may also allow time for partial payments toward unsecured debts, but dismissal of this debt is typical.
Chapter 7 bankruptcy requires you to pass your state’s means test, which determines if your annual income is above or below the state’s average during the six months before your filing. The test also considers your expenses and family size. After you qualify for Chapter 7, a court-appointed trustee coordinates the liquidation of your non-exempt assets, negotiates with your creditors, and pays them from the asset proceeds. Any debt unpaid by the liquidation proceeds is forgivable.
On the other hand, if your income exceeds your state’s average, you must itemize your allowable living expenses and subtract them from your salary to calculate your disposable income. That amount may qualify you for a Chapter 13 debt repayment plan.
Chapter 13 and Chapter 7 Affect Your Credit
The circumstances that lead to a bankruptcy filing have already impacted your credit long before your official filing. Still, Chapter 13 remains on your credit report for up to seven years, and Chapter 7 appears for up to ten years. You can begin rebuilding your credit after filing, though doing so involves a slow process. Your credit score will get an initial boost following the completion of your debt repayment plan. At that point, you likely begin to receive offers for small credit lines, which you can consider accepting.
Bankruptcy involves careful decision-making, but our chapter 7 bankruptcy lawyer in Seminole FL can guide you through the process and help you regain your financial health. At Carolyn Secor, P.A., we are here to help. Schedule an appointment today.