Get a Fresh Start

Chapter 7 Bankruptcy:

Chapter 7 bankruptcy, also known as "liquidation" or "straight bankruptcy," is designed to provide individuals and businesses with a fresh start by liquidating non-exempt assets to pay off creditors. This chapter is suitable for those with limited income and significant unsecured debts.

Key Points:

Liquidation of Assets: In Chapter 7, a court-appointed trustee may liquidate non-exempt assets to repay creditors. However, most individuals can retain all of their property including houses, cars, and cash in the bank. Your attorney can tell you the exemption amounts available to cover your assets.

Quick Debt Relief: Chapter 7 typically offers a quicker resolution, allowing individuals to discharge most unsecured debts, such as credit card balances and medical bills.

Automatic Stay: Filing for Chapter 7 triggers an automatic stay, halting creditor actions like collection calls, lawsuits, and wage garnishments.

Qualification Criteria: Eligibility for Chapter 7 is determined through a means test, evaluating your income compared to the median income in your state. However, just because your income would allow you to file a Chapter 7, it may not be the best option depending on the types of debt you have.

Chapter 13 Bankruptcy:

Chapter 13 bankruptcy, also known as a "reorganization," is suitable for individuals with a regular income who want to restructure their debts without liquidating assets. It's a great option if you make too much to qualify for a Chapter 7 or if you previously filed a 7 in the last 8 years aren't ready to file another one.

Key Points:

Debt Repayment Plan: In Chapter 13, debtors propose a repayment plan to the court, outlining how they will repay some creditors over a three to five-year period. Debtors can choose to pay off the entirety of car loans for vehicles they want to keep and mortgage arrearage to get caught up on their mortgage and stop a foreclosure through their Chapter 13 plan. Taxes and domestic support obligations are also paid through the plan but unsecured debt, like credit card debt, is only paid back to the extent the Debtor can afford it. Oftentimes, a Chapter 13 Debtor may only pay back less than 1% of their unsecured debt.

Retain Assets: Unlike Chapter 7, Chapter 13 allows individuals to retain all of their assets, even unexempt houses and cars, while catching up on missed payments, such as mortgages and car loans. 

Automatic Stay: Similar to Chapter 7, filing for Chapter 13 initiates an automatic stay, providing relief from creditor actions. The stay lasts for the duration of the Chapter 13 giving the maximum protection to Debtors.

Income Requirements: To qualify for Chapter 13, individuals must simply have a reliable source of income such as a job, self-employment, retirement, or social security to fund the repayment plan.