How Do I Know if Chapter 7 or 13 Bankruptcy is Right for Me?

Making the decision to move forward with filing bankruptcy seems like a big enough decision… the idea that you then have to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy seems like a bridge too far, and just one more complexity in an already complicated process. The truth is that though there is a very big difference between filing under Chapter 7 of the Bankruptcy Code and Chapter 13, understanding that difference and deciding which is right for you is relatively simple. Here’s what you need to know when deciding.

Chapter 7 is the bankruptcy that most individual debtors choose, and this is true for a number of reasons. First of all, taking advantage of Chapter 7’s laws permit you to get rid of almost all of your existing debt in exchange for giving up certain assets for those to whom you owe money to sell. In order to qualify for this remarkable ability to wipe the slate clean and start over as though you’d never gotten yourself into financial trouble, you have to prove that you are truly unable to pay off your debts. To qualify for Chapter 7, you must meet an income limitation, and if you go over the threshold then you’ll have no choice but to opt for Chapter 13.

By contrast, when you choose to file for bankruptcy under Chapter 13, your debts get reorganized rather than forgiven.  This is tied into the fact that the debtor has greater assets and is seen as being able to use some of their assets or income in order to pay back their creditors.  Those whose income levels demand choosing a Chapter 13 bankruptcy are provided with a debt repayment plan that allows them to pay off less of their debt, or to pay a smaller amount over a longer period of time. The idea is that by giving greater flexibility in which the debtor can organize their cash, they will be able to pull themselves out of financial trouble without the creditors being deprived of the monies that they are owed.

Just as Chapter 7 filers must fall within certain income limitations, those who want to pursue a Chapter 13 bankruptcy are limited in the amount of debt that they carry. Those who have unsecured debt over $336,900 or secured debt over $1,010,650 will not be able to restructure.

For assistance with navigating the ins and outs of bankruptcy, contact our experienced bankruptcy attorneys to set up an appointment.