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Chapter 7 or. Chapter 13 Which Bankruptcy option is Right for You?

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Chapter 7 or. Chapter 13 Which Bankruptcy Option Is Best for You?

Chapter 7 bankruptcy is faster and more affordable than Chapter 13 bankruptcy, but it’s not the best option for everyone.

By Sean Pyles Senior Writer | Personal financial, financial debt Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet’s «Smart Money» podcast. In «Smart Money» Sean talks with Nerds on NerdWallet’s NerdWallet Content team to answer listeners’ personal finance questions. With a focus on thoughtful and actionable financial advice, Sean provides real-world guidance to help people improve in their finances. In addition to answering listeners’ financial concerns on «Smart Money» Sean also interviews guests outside of NerdWallet and creates special segments on topics such as the racial gap in wealth as well as how to get started investing and the background of college loans.

Before Sean lead podcasting at NerdWallet the company, he also wrote about topics that dealt with consumer debt. His writing has been featured on USA Today, The New York Times and other publications. When Sean isn’t writing about personal finances, Sean can be found working in the garden, taking runs , and taking his dog on long walks. Sean is located in Ocean Shores, Washington.

Dec 15, 2021

Edited by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years with The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Prior experience includes copy editing and news for a variety of Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications from Iowa’s University of Iowa.

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Bankruptcy is among the fastest and most efficient methods to locate . The majority of people who choose this path will choose to file to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. The best option will depend on the person’s assets and financial objectives.

To help you comprehend the difference of Chapter 7 and Chapter 13 bankruptcy This article will explain the differences between the two types and who are the best for. Whatever you choose, if:

Your monthly consumer debt payments are greater than 50 percent of your take-home pay.

You’re being sued by creditors.

There is no way to pay off your debt in five years.

What is what’s the distinction in Chapter 7 and Chapter 13 bankruptcy?

The most significant differences between bankruptcy vs. bankruptcy are what is considered to be eligibility, how debts are resolved , and the time frame.

Look over this table to gain an overview of:

Chapter 7

Chapter 13

Form of bankruptcy liquidation.

Form of bankruptcy: Reorganization.

Eligibility:

You have to pass the means test, which examines your earnings, expenses and the size of your family.

There is no way to prove that you have had a Chapter 7 discharge in the or Chapter 13 in the past six years.

It is not possible to have filed bankruptcy papers (Chapter 7 or 13) in the previous 180 days, and it was rejected for certain reasons like failure to attend court or respecting the court’s or court.

Eligibility:

Unsecured debt cannot exceed $419,275 and secured debt cannot exceed $1,257,850.

You must earn a regular income and be current on tax filings.

Could not have filed a Chapter 13 filing in the recent two years or Chapter 7 within the last four years.

Cannot have filed bankruptcy (7 or 13) within the last 180 days. The petition was dismissed for a variety of reasons, like failure to appear or not complying with the court’s or court orders.

What is the time it takes to get a discharged: It is usually less than six months.

How long does it take to obtain a discharge? Usually three to five years, contingent on the repayment program.

Credit report marks The mark remains the credit score the time period from the date of filing.

Mark on credit report The mark remains on your credit report for from filing date.

Benefits:

The fastest methods to settle debts that are overwhelming.

The filing of a bankruptcy petition stops the collection process and prevents legal action from creditors.

Benefits:

Help you to resolve your debts while keeping certain assets or being caught up in secured debts, such as the auto loan or mortgage.

The filing of a bankruptcy petition stops the process of collecting and legal action by creditors.

Drawbacks:

Although it is rare, trustees may be able to sell nonexempt property.

The general rule is that unsecured debt does not protect against repossession or foreclosure.

Drawbacks:

The length and the cost of the repayment plan is challenging for many filers.

Which is better? Chapter 7 or Chapter 13?

Which type of option is right for you will depend on your financial situation and goals.

For determining whether Chapter 7 or Chapter 13 bankruptcy is the best option choice for your situation . You’ll want to ensure that your problem debts can be dealt with by bankruptcy and you’re in a position benefit from the new beginning bankruptcy offers.

Most consumers opt for Chapter 7 bankruptcy, which is quicker and cheaper in comparison to Chapter 13. Most bankruptcy filers are eligible to file Chapter 7 after taking the test, which looks at the household’s finances, income and size to determine the eligibility. Chapter 7 bankruptcy discharges, or wipes out, eligible debts such as credit card bills as well as medical debts and personal loans. Other debts, including student loans and tax debts, generally aren’t considered eligible. Also, Chapter 7 doesn’t offer a route to get caught up on secured loan payment, such as a mortgage or auto loan but it does not secure those assets from repossession or foreclosure.

In certain situations the bankruptcy trusteean administrator who collaborates in conjunction with bankruptcy courts to represent the debtor’s estate can sell nonexempt items, which means things that aren’t covered during bankruptcy. Nonexempt items vary according to the laws of the state.

Chapter 13 bankruptcy may be better for those who don’t qualify for the Chapter 7 filing, for instance when their income is too high. Some who are eligible for Chapter 7 may still choose to file to file Chapter 13 because they want to retain certain assets or avoid getting caught in mortgage payment. But, Chapter 13 repayment plans are challenging: All disposable income after certain allowances must be put toward repaying debt over three to five years.

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The author’s bio: Sean Pyles is the executive producer and host of NerdWallet’s Smart Money podcast. His writing has appeared in The New York Times, USA Today and elsewhere.

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