Deciding to take the first step towards filing for bankruptcy is a big choice. But now that you’re considering it, let’s get some of the confusion out of the way. What bankruptcyexactly is the difference between Ch 7 Bankruptcy and Ch 13 Bankruptcy? The first and main difference is going to be your monthly household income. If you’re considered in a low-income status, you’ll most likely fall into Ch 7.  Ch 7 has it’s advantages and disadvantages which you will see stated below.  Ch 13 bankruptcy is filed for various reasons, one of which is where Ch 7 is not an option.  Ch 13 has you repay some of your debts as part of a monthly repayment plan.  Therefore, as part of the initial filing process, we would need to determine your household income.  This will be addressed alongside your bankruptcy attorney who will assist you with this matter.

In order to analyze your initial eligibility for Ch 7, you’ll be asked to complete a means test. This is a six (6) month average of your total household income plus certain monthly deductions and household expenses.  If you do not pass the means test, you may not be eligible for Ch 7 bankruptcy.   However, there are other factors that might exempt you from needing to pass the means test: such as history in military service, majority business purposes debt, and so on. If you are ineligible for Ch 7, then you are likely to be eligible for Ch 13.  Both Chapters have pros and cons that should be considered before you make a final decision.

Advantages of Ch 7

  • STOPS all collection activity upon filing
  • It’s considered the fresh start bankruptcy
  • Quickly get rid of your dischargeable debts in four (4) to five (5) months; including mortgages, broken lease agreements, and pending judgment(s) and lawsuit(s).
  • No long-term repayment plans
  • No limits on the total amount of debt(s)
  • Can delay foreclosure of eviction proceedings

Disadvantages of Ch 7

  • There are certain non-dischargeable debts which survive a Ch 7 bankruptcy. For example: child support and/or student loans
  • It is a straight liquidation bankruptcy, which can possibly lead to liquidation (sale) of certain assets
  • It reports on your credit history for 10 years

Advantages of Ch 13

  • STOPS all collection activity upon filing
  • You are placed on an affordable repayment plan which pays towards your debts, as well as prevents liquidation of personal property
  • Debt(s) are forgiven once you complete the Ch 13 repayment plan, which is usually between three (3) and five (5) years
  • Can save your home from foreclosure by curing delinquent payments or obtaining a modification on the loan
  • Creditors cannot contact you directly while in your Ch 13

Disadvantages of Ch 13

  • It will not discharge or forgive certain forms of debt, such as child support or student loans
  • It will report on your credit history for up to eight (8) years
  • Your payment plan requires you to annually file your taxes and calculate your monthly disposable income for the purposes of determining your monthly repayment plan

If you’re considering filing for bankruptcy, it is extremely important that you seek legal advice from a bankruptcy attorney.  The best tool you can have is a knowledge obtained from an experienced and aggressive bankruptcy attorney.

The Tudhope Law Firm is experienced in consumer protection and bankruptcy law for over ten (10) years; with over 1700 trusted clients and 10,600 bankruptcy cases to date. For a free consultation, call us at 407-969-0044 or request one online.


CategoryBankruptcy Law

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