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Chapter 7 or. Chapter 13: What Bankruptcy Option Is Best for You?
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Chapter 7 vs. Chapter 13: Which Bankruptcy option is Right 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 financial, financial debt Sean Pyles leads podcasting at NerdWallet as the host and producer of the NerdWallet's "Smart Money" podcast. In "Smart Money" Sean talks with Nerds on the NerdWallet Content team to answer listeners' personal finance questions. With a focus on thoughtful and practical money tips, Sean provides real-world guidance to help people improve in their finances. In addition to answering listeners' financial concerns on "Smart Money," Sean also interviews guests who are not part of NerdWallet and produces special segments to explore topics like the racial wealth gap, how to start investing, and the history of college loans.
Before Sean was the host of podcasting for NerdWallet, he covered topics related to consumer debt. His work has been published on USA Today, The New York Times as well as other publications. When when he's not writing about personal finance, Sean can be found working in his garden, going on walks, or walking his dog for long walks. He is based at Ocean Shores, Washington.
Last updated Dec 14th, 2021 at, 4:51PM PST
Edited by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. In the past, she worked for 18 years with 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 for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communications and journalism at the University of Iowa.
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The bankruptcy process is among the most efficient and fastest methods to locate . Many people who take this path will choose to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Which is best depends on the individual's assets as well as financial objectives.
To help you understand the difference in Chapter 7 and Chapter 13 bankruptcy Here's a brief overview of each type and whom are the best for. Whichever you choose, if:
Your monthly consumer debt payments are more than 50 percent of your take-home pay.
You're in the middle of lawsuits from creditors.
You don't have the means to pay off your debt within five years.
What's the difference in Chapter 7 and Chapter 13 bankruptcy?
The main differences of the two types of. bankruptcy is the conditions for eligibility, how debts are resolved , and the duration of time.
Check out this table to get an understanding at a glance:
Chapter 7
Chapter 13
Form of bankruptcy Liquidation.
Form of bankruptcy Reorganization.
Eligibility:
You must pass the mean test, which examines your earnings, expenses, and family size.
Cannot have had a previous Chapter 7 discharge in the or Chapter 13 in the past six years.
You cannot have filed bankruptcy papers (Chapter 7 or 13) within the last 180 days that was dismissed due to certain circumstances for example, failing to appear in court or respecting court order.
Eligibility:
Unsecured debt can't exceed $419,275, and secured debt must not exceed $1,257.850.
Must have regular income and have current tax returns.
Cannot have had any Chapter 13 filing in the last two years, or Chapter 7 within the past four years.
It is not possible to have filed a bankruptcy petition (7 or 13) in the preceding 180 days that was dismissed for certain reasons, like failure to appear or not complying with court or court orders.
What is the time it takes to achieve a discharge: Usually under six months.
How long does it take to get a discharged: Usually three to five years, contingent on the repayment plan.
The credit report's mark It remains in your credit file for from filing date.
Credit report marks It remains in your credit file the time period from the date of filing.
Benefits:
One of the fastest methods to settle debts that are overwhelming.
The filing of a bankruptcy petition stops the collection process and prevents legal action from creditors.
Benefits:
Can help you resolve your debts, while also preserving certain assets and not falling behind on secured debts, such as the auto loan and mortgage.
A bankruptcy petition can stop the collection process and prevents legal action from creditors.
Drawbacks:
Although rare, the trustee may be able to sell property not exempt from taxation.
The general rule is that unsecured debt does not protect from repossession or foreclosure.
Drawbacks:
The length and cost for the plan is challenging for many filers.
Which is better: 7 or Chapter 7 rather than Chapter 13?
The best option for you will depend on your personal financial situation and your goals.
To determine whether Chapter 7 or Chapter 13 bankruptcy is best for you . You'll want to ensure that your debt problems are able to be dealt with through bankruptcy, and that you're able to get the most benefit of the fresh start bankruptcy can provide.
Most consumers opt for Chapter 7 bankruptcy, which is faster and cheaper in comparison to Chapter 13. The vast majority of filers qualify in Chapter 7 after taking the , which analyzes the household's finances, income and size to determine eligibility. Chapter 7 bankruptcy discharges, or eliminates, debts that are eligible like credit card charges medical debt, personal loans. Other debts, including student loans and taxes, usually aren't qualified. Additionally, Chapter 7 doesn't offer a option to pay on secured loan repayments, such as a mortgage or auto loan, and it doesn't safeguard these assets from repossession or foreclosure.
In some cases the bankruptcy trusteean administrator who collaborates with bankruptcy courts to manage the estate of the debtor -- may sell nonexempt items, which means things that are not covered by bankruptcy. Nonexempt items vary according to state law.
Chapter 13 bankruptcy may be more suitable for those who do not meet the requirements for Chapter 7 bankruptcy. Chapter 7 filing, for instance when their income is too high. For those who do qualify to file for Chapter 7 may still choose to apply to file Chapter 13 because they want to keep certain assets or catch up on their mortgage payments. The downside is that Chapter 13 repayment plans aren't without challenges: Any available income after allowances must be directed towards repaying the debt over three up to 5 years.
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Author bios: Sean Pyles is the host and executive producer of the NerdWallet's Smart Money podcast. His work has been published in The New York Times, USA Today and elsewhere.
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