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(image: https://i.pinimg.com/originals/1a/b9/5e/1ab95eda19f9ff89050f3ec65710ca68.png)Chapter 7 or. Chapter 13: What Bankruptcy Option Is Best for You?
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Chapter 7 vs. Chapter 13: What Bankruptcy Option Is Best for You?
Chapter 7 bankruptcy is faster and more affordable than Chapter 13 bankruptcy, but it's not the most suitable option for everyone.
Written by Sean Pyles Senior Writer | Personal finances and debt Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet's "Smart Money" podcast. In "Smart Money," Sean talks with Nerds from 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 who are not part of NerdWallet and creates special segments on topics like the racial wealth gap and how to begin investing, and the background of college loans.
Before Sean lead podcasting for NerdWallet, he covered topics concerning consumer debt. His work has been published in USA Today, The New York Times and elsewhere. When Sean isn't writing about personal finances, Sean can be found working in his garden, going for walks, or walking his dog for long walks. He is based at Ocean Shores, Washington.
Last updated Dec 14th, 2021 at at 4:51 PM PST
Edited by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the Core Personal Finance team at NerdWallet. Previously, she spent 18 years at The Oregonian in Portland in capacities such as chief of the copy desk and team editor and designer. Previous experience included news and copy editing at many Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in journalism and mass communications in the University of Iowa.
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Bankruptcy is among the most efficient and fastest ways to find . Most consumers who follow this route are able to file in Chapter 7 bankruptcy or Chapter 13 bankruptcy. The best option will depend on the individual's assets and financial objectives.
To help you understand the differences of Chapter 7 and Chapter 13 bankruptcy, here's a breakdown of the two types and who they're suitable for. Whatever you select, you must:
Your monthly debts to consumers are greater than 50% of your monthly take-home earnings.
You're facing lawsuits from creditors.
You see no way to pay off your debt in five years.
What's what's the distinction between Chapter 7 and Chapter 13 bankruptcy?
The major differences between the two types of. bankruptcy is the criteria for eligibility, the way debts are resolved and the duration of time.
Look over this table for an understanding in a glance:
Chapter 7
Chapter 13
Form of bankruptcy liquidation.
Form of bankruptcy: Reorganization.
Eligibility:
You have to pass the means test, which looks at your expenses, income 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 a bankruptcy petition (Chapter 7 or 13) within the past 180 days, and it was rejected for certain reasons for example, failing to show up in court or to follow the court's orders.
Eligibility:
Unsecured loans cannot exceed $419,275 and secured debt must not exceed $1,257.850.
Must have regular income and have current tax returns.
It is not possible to have had an Chapter 13 filing in the last two years, or Chapter 7 within the past four years.
Cannot have filed a bankruptcy petition (7 or 13) in the preceding 180 days. The petition was dismissed for a variety of reasons, such as failure to appear or not complying with 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 achieve a discharge: Usually, three to five years, depending on the repayment program.
The credit report's mark It remains in your credit file for from filing date.
The credit report's mark The mark remains in your credit file for the time period from the date of filing.
Benefits:
The fastest methods to resolve overwhelming debt.
Filing a bankruptcy petition halts collection efforts and legal action from creditors.
Benefits:
Can help you resolve your debts while retaining certain assets or falling behind on secured debts, like the auto loan or mortgage.
Filing a bankruptcy petition halts the collection process and prevents legal action from creditors.
Drawbacks:
Although rare, the trustee can sell nonexempt property.
Generally for unsecured debt; is not protected against repossession or foreclosure.
Drawbacks:
The length and cost of the repayment plan can be challenging to many filers.
Which one is better? 7 or Chapter 7 rather than Chapter 13?
The best option for you depends on your situation financially and goals.
For determining whether Chapter 7 or Chapter 13 bankruptcy is right to you . You'll want to ensure that the debts you are struggling with can be handled by bankruptcy, and that you're in a position to benefit from the fresh start bankruptcy can provide.
Most consumers opt for Chapter 7 bankruptcy, which is quicker and less expensive than Chapter 13. A majority of people who file for bankruptcy qualify for Chapter 7 after taking the examination of the household's finances, income and size to determine eligibility. Chapter 7 bankruptcy discharges, or eliminates, debts that are eligible like credit card debts as well as medical debts and personal loans. Other debts, including student loans and taxes, typically aren't considered eligible. Additionally, Chapter 7 doesn't offer a option to pay on secured loan payments, like an auto or mortgage loan, and it doesn't protect those assets from foreclosure or repossession.
In some instances, a bankruptcy trustee -an administrator who cooperates with bankruptcy courts to represent the estate of the debtor -- may sell items that are not exempt, i.e. items that aren't covered by bankruptcy. Nonexempt items vary according to state law.
Chapter 13 bankruptcy may be ideal for those who don't meet the requirements for the Chapter 7 filing, for instance, if their income is excessive. For those who do qualify for Chapter 7 may still choose to apply in Chapter 13 because they want to keep certain assets or avoid getting caught up on their mortgage payments. But, Chapter 13 repayment plans are challenging: All disposable income after certain allowances must be directed towards repaying debt over a period of three or five years.
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About the author: Sean Pyles is the executive producer and host on the NerdWallet's Smart Money podcast. His work has been published on The New York Times, USA Today and elsewhere.
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