Chapter 13 vs Chapter 7 Bankruptcy

What Does Each Have to Offer?

While bankruptcy provides for the protection of the consumer during the debt elimination process, Chapter 13 and Chapter 7 bankruptcy offers different advantages.  Depending on your financial situation, the type of bankruptcy to file may vary according to each individual’s unique situation.  It is important to examine your current financial situation as well what your expected future financial situation before deciding on which type best suits your needs. If you expect your financial situation to improve, a Chapter 13 bankruptcy may be the best option; whereas if you expect your financial hardship to remain, you may want to apply for a Chapter 7 bankruptcy.  Your choice between the two options will also vary according to your short and long term goals.

Benefits of Chapter 13 Bankruptcy

One of the biggest concerns people have is whether they will lose all of their assets. Although Texas is one of the more lenient states that provides many exemptions that can protect your assets, there is no guarantee your assets will be safe from liquidation. The main benefit to filing a Chapter 13 bankruptcy, is that is protects your assets from being seized and liquidated by creditors. A Chapter 13 bankruptcy petition requests a debt reorganization plan in which you make your payments over a specified period of time, while still being allowed to keep your property. As long as you follow your repayment plan schedule, you will keep your property as you continue to pay it off.

Chapter 13 bankruptcy allows protects your home from foreclosure and car from repossession. A Chapter 13 bankruptcy is a debt reorganization plan, rather than a debt liquidation plan of Chapter 7 bankruptcy. When you a file a Chapter 13 bankruptcy, the debt repayment plan outlines the terms and conditions of your payments and a copy of the plan is sent to the lender. Having a court approved repayment plan prevents creditors from attempting to collect on the debts outside of the terms set forth in the plan. The debt repayment plan typically allows for you to have anywhere between 36 to 60 months to repay your missed debts and catch up on your payments, without having to pay a lump sum to eliminate your debt. At the end of the payment plan, your account will be “current” and you will have maintained possession of your property throughout the process.

Many people owe a lot of money in unsecured debts such as credit cards, gym memberships, and medical bills. These are debts that do not have any collateral that can be seized and liquidated in the event you default on your payments. But that does not mean the creditor cannot make attempts to collect on these debts. Some of your unsecured debts can also be eliminated through a Chapter 13 bankruptcy plan. The court can add your unsecured debt into the debt repayment plan, allowing you to eliminate most of your debt in a monthly payment. Once you have completed the debt repayment plan, your case will be discharged.  It is often easier to obtain credit after a Chapter 13 bankruptcy since you repaid your debts rather than having them erased through a Chapter 7 bankruptcy.

Benefits of Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is often the best choice for individuals who are experiencing an extended financial hardship. If you do not foresee having the means that would allow you to repay your debts over a period of 36 to 60 months, a Chapter 7 bankruptcy can help you eliminate your debts quickly and with little cost to you.  A Chapter 7 bankruptcy can complete the debt elimination process and discharge your debts within as little as 6 months; whereas a Chapter 13 bankruptcy can take years.

Unlike a Chapter 13 bankruptcy, a Chapter 7 bankruptcy can eliminate most or all of your unsecured debts.  Debts such as medical bills, personal loans, utility bills, payday loans and credit cards can be eliminated in a Chapter 7 bankruptcy.  When you receive a Chapter 7 bankruptcy discharge, you will most likely not owe your creditors anything. Also, your negative payment history is erased in a Chapter 7 bankruptcy, whereas a Chapter 13 bankruptcy will show the negative payment history in addition to the repayment history.