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It’s never fun to have to contemplate bankruptcy. But if you are getting stressed out by debt and getting tired of creditors calling you day and night, bankruptcy might represent a light at the end of the tunnel. It helps to understand your options, so in this post, our Massachusetts bankruptcy attorney compares the most common types of personal bankruptcy options: Chapter 7 and Chapter 13.
What Is Chapter 7 Bankruptcy?
Also known as “liquidation” bankruptcy, Chapter 7 bankruptcy is designed to eliminate most unsecured debts like personal loans, medical bills, and credit card balances. It involves selling non-exempt assets (like boats, art, or jewelry) to repay creditors. However, there are exemptions you may qualify for to keep essentials like your home, auto, or many of your personal belongings.
Advantages of Chapter 7
You might wonder if there are any advantages to filing for bankruptcy, but actually, there are. Here are some of the highlights:
- Quick process, usually done in 3-6 months
- Offers a fresh start, with most unsecured debts being discharged entirely
- Available to individuals with minimal disposable income
While these are great advantages, you might not qualify if your income is too high. To determine if you can file for liquidation bankruptcy, your attorney will run you through a “means test” to see if you qualify.
Disadvantages of Chapter 7
Like most things in life, Chapter 7 bankruptcy has its trade-offs. While you may get a fresh start, you also might be faced with:
- Potential loss of assets like a second vehicle or investment property
- Continued non-dischargeable debts like child support, student loans, or tax obligations
While this may sound daunting, talking with an experienced Chapter 7 bankruptcy attorney can help you understand what may happen in your situation.
Who Is It For?
Chapter 7 is designed for individuals or couples with limited resources and income. This may include:
- Low-wage workers.
- Recently unemployed individuals.
- People who are facing overwhelming medical bills.
- Young professionals or students who haven’t accumulated significant assets but are struggling with debt.
Now, let’s move on to Chapter 13 bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13, also referred to as “reorganization bankruptcy,” allows individuals with a steady income to create a repayment plan to pay off their debts over a period of three to five years. Unlike Chapter 7, Chapter 13 lets you keep your assets while you catch up on your over-due debts.
Advantages of Chapter 13
While not offering a “clean slate,” reorganization bankruptcy will:
- Protect your assets from liquidation (being sold).
- Stop foreclosures and repossessions so you can keep your home and vehicles.
- Allow you to continue paying your secured debt as part of your repayment plan.
Now, let’s look at the downside of Chapter 13.
Disadvantages of Chapter 13
Again, while there are some advantages of filing under Chapter 13, you should also know that:
- The process takes longer, requiring you to make consistent payments to creditors over the next three to five years before completion.
- It has higher legal and administrative costs than Chapter 7
- You must be disciplined in your budget to meet your repayment obligations.
If you’re not sure which bankruptcy option is right for you, speak with a bankruptcy lawyer about your circumstances.
Who Is It For?
Chapter 13 is ideal for individuals with stable income and significant assets. This might include:
- Salaried employees with regular income.
- Small business owners wanting to maintain business operations.
- Homeowners at risk of foreclosure.
- Professionals like teachers, nurses, or government workers with predictable paychecks and secured debt obligations.
How Logan A. Weinkauf P.C. Can Help
Navigating bankruptcy can be overwhelming, but you don’t have to do it alone. At Logan A. Weinkauf P.C., our experienced bankruptcy attorney is here to guide you every step of the way. Whether you’re considering Chapter 7 or Chapter 13, we’ll help you assess your financial situation and choose the option that best meets your needs. Contact us for a free consultation to help you regain control of your finances.