Chapter 7 vs. Chapter 13 Bankruptcy

It goes without saying that bankruptcy is not for everyone. In fact, a person must be found eligible by taking a means test before they can even file. It is also important that they file under the correct chapter of the United Stated Bankruptcy Code according to their individual financial situation. Below are the main pros and cons for both Chapter 7 and Chapter 13 bankruptcy, which are the two chapters under which individuals and families (as opposed to businesses) may file. For further information and a complimentary evaluation of your case, contact The Law Offices of Justin McMurray, P.A. to speak with a Jacksonville bankruptcy and foreclosure defense attorney. A lawyer from our firm can review your financial situation and advise you of the best course of action to reach the most positive outcome possible.

Difference Between Chapter 7 and Chapter 13 Bankruptcy

Both bankruptcies are quite different in how they work, and who can file for them. In order to determine whether Chapter 7 or Chapter 13 is right for you, following points can be taken into consideration:

Chapter 7 and Chapter 13 bankruptcy differ in the way they work: Chapter 7 bankruptcy is a liquidation kind of bankruptcy, where some or all of your major assets will be sold and that money will be used to pay off your creditors. Certain possessions are exempt from sale, which can include your car, any tools necessary for work, or basic household furnishings. Not every kind of debt is included in Chapter 7, with taxes, student loans and child support not being included. Chapter 13 bankruptcy is a restructuring of your debt where you agree to a repayment plan with your lenders over the course of three to five years. With Chapter 13 you can keep all of your assets, like your house, boats, or cars, which may have otherwise been sold in a Chapter 7 bankruptcy case.

Chapter 7 and Chapter 13 bankruptcy differ in the repayment of debt: Chapter 7 will completely eliminate the remaining balance of your dischargeable debt after the sale of your assets. Chapter 13 creates a repayment plan to pay off some of your debt over three to five years.

Chapter 7 and Chapter 13 bankruptcy different in the length of time they take: The time it takes to complete Chapter 7 bankruptcy is typically between four to six months, while a Chapter 13 will take three to five years of a repayment plan to complete.

Chapter 7 and Chapter 13 bankruptcy affect your credit score differently: Chapter 7 is a much more severe form of bankruptcy and has a very severe negative effect on your credit score and take several years for significant improvement in the score. Chapter 13 is not quite as severe since you are paying off some of the debt you owe.

Chapter 7 Bankruptcy: Pros & Cons

Chapter 7 of the U.S. Bankruptcy Code allows individuals with no or very little income to seek relief from overwhelming debts through liquidation. When a person passes the means test and qualifies for Chapter 7, their assets and personal property will be sold or “liquidated,” and the proceeds will be used as payment for the debt. Some assets and money are exempt under Florida law, but an individual could be required to liquidate their home, car, or even their furniture when filing under Chapter 7. On the other hand, the pros of Chapter 7 include avoiding foreclosure, elimination of debt, and the chance of a fresh financial start.

Chapter 13 Bankruptcy: Pros & Cons

If a person takes the means test and makes less than the national average for disposable income but still has steady income and can afford some form of repayment, then Chapter 13 may be available for them. Under Chapter 13, an individual or couple can negotiate with their lender and set up a three- to five-year repayment plan. They will make payments that are agreed upon as affordable and, when the repayment term is up, the remaining debt will be discharged. Chapter 13 does not require liquidation; therefore, its positive aspects include keeping your home and car and the ability to achieve financial freedom. The downside is that you will continue making payments for the next three to five years.

Why hire a Jacksonville bankruptcy lawyer?

Without the guidance and legal representation of a skilled bankruptcy attorney, the bankruptcy process will be confusing and overwhelming. The Law Offices of Justin McMurray, P.A. offers a free initial consultation, so contact our firm today to learn how we can help. We are knowledgeable in all federal and state bankruptcy laws and will fight to defend your consumer rights under the Fair Debt Collection Practices Act (FDCPA) and other laws. Contact us as soon as possible and take the first step toward freedom from overwhelming debt.