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What are the major differences between Chapter 13 and Chapter 7 bankruptcy?

by | Apr 14, 2021 | Bankruptcy

It is not uncommon for people to consider bankruptcy a last resort. Instead of filing, they continue to battle against mounting debt and ultimately start sacrificing the timely payment of one bill to have the funds necessary to pay another. After reaching this stage of financial uncertainty, declaring bankruptcy should be a clear option.

Many people find it challenging to properly gauge their finances. They will likely choose to fight to remain solvent even while making sacrifice after sacrifice. While budgeting is important, when people begin making unsavory decisions necessary to keep their heads above water the problem must be resolved. Do you …

  • Intentionally miss one utility bill to make a payment on another bill?
  • Pay for one credit card with another credit card?
  • Intentionally pay a bill late because you won’t have enough money to cover the payment?
  • Research paycheck advance or debt consolidation services to organize finances?

Fortunately, the Bankruptcy Code exists to give Americans a way to eliminate debt and start building a stable financial future.

Differences between Chapter 7 and Chapter 13

Depending on your unique situation, you will likely explore either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Chapter 7 is often referred to as “debt elimination” as most unsecured debts are discharged at the end of the process. It generally has a much shorter duration than Chapter 13. Chapter 13 is often called “debt reorganization and repayment” and a portion of the total debt is repaid over the course of a three-year or five-year plan. At the successful completion of the plan, the remaining unsecured debt is discharged.

How much does a bankruptcy cost?

Working with an attorney through the bankruptcy process can cost several hundred to thousands of dollars. It can be a challenge working out a payment schedule as the bankruptcy itself will tie up most credit cards and other monetary resources outside the normal income stream. Many people wait until they receive a financial windfall before filing for bankruptcy. A bonus at work, for example, or a healthy tax return can represent a perfect time to seek debt relief through the bankruptcy process.

Since financial situations are complex, private matters, it is wise to seek the guidance of a skilled bankruptcy attorney. Do not hesitate to ask questions about your options and how best to proceed.