Should I File Chapter 7 or 13 Bankruptcy


Most people usually intend to pay back loans when they originally sign a contract. But sometimes things don’t always go as planned and you might find yourself in a precarious financial position, unable to meet your monthly obligations. Depending on the reason for your difficulty, bankruptcy might be an option that will get your head above water and give you a fresh start.

There are two types of bankruptcy that are considered for individuals who need some assistance in getting back on their feet. A chapter 13 bankruptcy is designed for those that can pay back the debt owed, but are behind and need the court’s help in catching up and getting back on a consistent payment plan. A chapter 7 bankruptcy is considered a complete bankruptcy where the debtor is unable to pay back any of the debt and is legally absolved from any responsibility.

A chapter 13 involves setting up a payment plan for all outstanding debt and arrangements are made to pay on a monthly basis to the trustee of the court. Once filed, all collection activity on the part of the creditor must stop until the decision has been made by the court. Creditors are allowed to contest the filing at the meeting of the creditors, where you and the creditors meet to discuss the situation with the trustee. The first monthly payment must be made 30 days from the date of filing, regardless of the state of the case. This shows the court that you have the ability and willingness to pay back the debt. In most cases of a Chapter 13, you are able to keep your assets unless they are held as collateral on a debt that you want to relinquish.

A chapter 7 is a complete dismissal of all debt and is based on your current income and assets. Keeping of assets in a Chapter 7 filing becomes more of an issue than if you opted for a repayment plan through a chapter 13. Generally speaking, you can keep your home or car in what’s called reaffirming the debt by agreeing to continue to make payments on items held as collateral for a loan. Any assets that you own that are unencumbered by debt are looked at more closely by the court as a means to liquidate for cash to apply to the debt owed to your creditors.

The type that is best for you will depend on your current income, assets and outstanding debt. Both types are based on a means test specifically formulated for your state. If you find yourself in a difficult financial situation, consult with a bankruptcy attorney to discuss your options.