Chapter 7 vs. Chapter 13 | Sirody & Associates, Baltimore MD
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When debt accrued has exceeded certain unbearable levels by either an individual or business, bankruptcy is often sought to secure financial relief and set up a process whereby debts can be discharged or creditors can be paid over a period of time. Two major categories of bankruptcy (Chapter 7 and Chapter 13) are commonly used and both are part of the official U.S. Bankruptcy Code.

The question may be asked – “What bankruptcy is right for me”? The following information will help you make this decision. In order to choose the right bankruptcy chapter for your situation, it’s important to understand the purpose and benefits associated with each filing.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy consists mainly of a liquidation process whereby a portion of your assets are sold to pay off debt obligations. Often referred to as individual or consumer bankruptcy, this form of bankruptcy can often take anywhere between 3 to 6 months to complete. A court appointed trustee will often sell property that secures your debt in order to pay off your creditors. You get to retain some of your personal items, including household furnishings, clothing and other possessions – this can sometimes include even your car and your home as long as their value doesn’t exceed certain limits set by the U.S. Bankruptcy Code. To be eligible for Chapter 7, the filer must either have a median family income level that falls below the national average or else pass a means test that determines if the margin of excess income exceeds that allowed by the bankruptcy code.

Chapter 13 Bankruptcy
Chapter 13 bankruptcy is an option for individuals or couples that are unable to meet the means testing standards under Chapter 7. This bankruptcy process consists of a reorganization of debts and provides the opportunity for the debtor to keep their property and other highly valued assets while operating under a plan whereby they pay off their debts over a 2 to 5 year period. Chapter 13 bankruptcy also requires proof of a consistent and reliable source of income. More debts are allowed to be discharged under Chapter 13 as opposed to Chapter 7, but Chapter 13 requires the debtor to make payments on both secured and unsecured debts over the life of the plan. Since there are no standardized forms for such a payment plan, seeking the advice from a qualified bankruptcy attorney when preparing these repayment plan documents is essential.

Choosing the Right Bankruptcy Option
When you are trying determining what bankruptcy is right for you, it must first be understood that this is an official legal process and always requires the advice and representation of a qualified legal professional. Your attorney will have the knowledge and practical experience to help you make the most advantageous choice, depending upon your current financial situation.

Disclaimer: This is not legal advice. You must consult a lawyer to get actual advice.