Choosing the right chapter is one of the most important parts of filing for bankruptcy. As an individual, you’ll most likely have to choose between two options: Chapter 7 and Chapter 13. Choosing the wrong chapter could have serious consequences, including possibly having your case denied or dismissed due to lack of qualification. So to help you make the right choice, let’s take a closer look at some of the key differences between these chapters.
Chapter 7 bankruptcy is also known as “liquidation bankruptcy” because of the liquidation process it often includes. In short, the Chapter 7 process involves totaling up your assets, applying the appropriate exemptions and protections, and then your remaining property is sold off (liquidated) and the proceeds used to pay your creditors. Once this sale is completed, the remainder of your debts are discharged, giving you a fresh start.
While Chapter7 may seem like the simplest form of bankruptcy, it’s also one of the most stressful. It’s not uncommon for people to lose a lot of possessions that are extremely valuable to them as part of the liquidation process, and those who don’t utilize their exemptions well may lose more than they should.
Those who wish to file for Chapter 7 bankruptcy must also pass a “means test,” which is essentially a test of your ability to make your payments based on your current monthly income. If you fail to qualify, you’ll have to choose a different bankruptcy option.
Unlike Chapter 7 which takes the liquidation route, Chapter 13 is a longer and more drawn-out process that allows someone to essentially re-organize their financial affairs and develop a plan to pay off their debts as much as possible within a three to five year span. This plan must be approved by the court and do everything possible to repay outstanding debts within this limited stretch. Assuming you make a good faith effort to repay your loan and stick to your payment plan, the court will likely grant a discharge on any remaining unsecured debts at the end of your repayment plan period.
On the downside, this process takes longer to complete and means your credit score will continue to feel the effects for a much longer period. However, on the plus side the lack of liquidation means you get to keep more of your property and a much lower chance of losing that which is important to you.For more information about Chapter 7 and Chapter 13 bankruptcy, discuss your case with a Northbrook bankruptcy attorney from Bach Law Offices today! Call us at (847) 448-0025 to schedule your consultation.