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

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Chapter 7 vs. Chapter 13: Which Bankruptcy Choice is Best for You?

Chapter 7 bankruptcy is faster and cheaper in comparison to Chapter 13 bankruptcy, but it’s not the most suitable option for everyone.

by Sean Pyles Senior Writer | Personal finance, credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the producer and host of the NerdWallet’s «Smart Money» podcast. In «Smart Money,» Sean talks with Nerds across the NerdWallet Content team to answer the questions of listeners about their personal finances. With a particular focus on sensible and practical advice on money, Sean provides real-world guidance to help people improve their financial lives. Beyond answering listeners’ money concerns on «Smart Money,» Sean also interviews guests outside of NerdWallet and creates special segments to explore topics like the racial inequality gap and how to begin investing and the background of college loans.

Before Sean lead podcasting at NerdWallet the company, he also wrote about topics concerning consumer debt. His work has been published on USA Today, The New York Times and elsewhere. When when he’s not writing about personal finances, Sean can be found digging around the garden, taking walks, or walking his dog for long walks. He is based within Ocean Shores, Washington.

Dec 15, 2021

Edited by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Her previous experience included news and copy editing for various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communications and journalism from the University of Iowa.

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The bankruptcy process is among the fastest and most effective ways to find . Many people who take this option are able to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Which is best depends on the individual’s assets and financial objectives.

To help you comprehend the differences in Chapter 7 and Chapter 13 bankruptcy, here’s a breakdown of each type and whom they’re best for. Regardless of which you might decide to go with, it’s best if:

Your monthly payments to your consumer debt are greater than 50% of your monthly take-home earnings.

You’re facing lawsuits from creditors.

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

What is the difference in Chapter 7 and Chapter 13 bankruptcy?

The main differences of and. bankruptcy is what is considered to be eligibility, how debts are resolved , and the length of time.

Take a look at this table for an understanding in a glance:

Chapter 7

Chapter 13

Form of bankruptcy: Liquidation.

Reorganization of the bankruptcy process: Form of bankruptcy.

Eligibility:

You must pass the mean test, which examines your income, expenses and the size of your family.

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

You cannot have filed a bankruptcy petition (Chapter 7 or 13) within the last 180 days, and it was rejected for certain reasons like failure to appear in court or comply with the court’s order.

Eligibility:

Unsecured loans cannot exceed $419,275 while secured debt must not exceed $1,257.850.

Regular income is required and must be current on tax filings.

Cannot have had any Chapter 13 filing in the recent two years or Chapter 7 in the past four years.

Cannot have filed bankruptcy (7 or 13) within the last 180 days that was dismissed for a variety of reasons, such as failure to appear or not complying with court order.

What is the time it takes to obtain a discharge? In most cases, less than six months.

What is the time it takes to get a discharged: Usually, three to five years, contingent on the repayment plan.

Credit report marks The mark remains on your credit report for the time period from the date of filing.

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

Benefits:

A quick ways to resolve overwhelming debt.

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

Benefits:

It can help you settle your debts while keeping certain assets and not falling behind on secured debts, such as an auto loan and mortgage.

A bankruptcy petition can stop collection efforts and legal action from creditors.

Drawbacks:

Although it is rare, trustees is able to sell property that is not exempt.

Generally for unsecured debt; does not protect from foreclosure or repossession.

Drawbacks:

The duration and price that comes with the payment plan are difficult to many filers.

Which is better: chapter 7 instead of Chapter 13?

Which type of option is right for you is based on your personal financial situation and objectives.

To decide if Chapter 7 or Chapter 13 bankruptcy is best choice for your situation . You’ll need to be sure your problem debts can be dealt with by bankruptcy and you’re able to make the most of the fresh start that bankruptcy offers.

Most consumers opt for Chapter 7 bankruptcy, which is quicker and cheaper in comparison to Chapter 13. Most filers qualify in Chapter 7 after taking the , which analyzes the family’s income, expenditures and size to determine eligibility. Chapter 7 bankruptcy discharges, or erases, eligible debts like credit card debts, medical debt and personal loans. Other debts, including student loans and tax debts, generally aren’t considered eligible. And Chapter 7 doesn’t offer a way to catch up on secured loan payment, such as a mortgage or auto loan however it doesn’t secure those assets from repossession or foreclosure.

In certain instances, a bankruptcy trustee -an administrator who cooperates in conjunction with bankruptcy courts to manage the estate of the debtor can sell items that are not exempt, i.e. items that aren’t protected in bankruptcy. Nonexempt items vary according to state law.

Chapter 13 bankruptcy may be ideal for those who don’t qualify for the Chapter 7 filing, for instance when their income is excessive. For those who do qualify for Chapter 7 may still choose to choose to file to file Chapter 13 because they want to keep certain assets or avoid getting caught behind on mortgage payments. The downside is that Chapter 13 repayment plans are challenging: All disposable income after certain allowances must be put towards repaying debt over a period of 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 been featured in The New York Times, USA Today and elsewhere.

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