While almost everyone turns to Chapter 7 bankruptcy when they need debt relief, there is another option for filers that are unable to file under that Chapter. Read on to find out what a Chapter 13 filing can mean for those needing an alternate solution.
The Main Differences
With Chapter 7, filers can be absolved of all unsecured debt and that covers credit cards, medical debt, personal loans, payday loans, and more. Chapter 7 is also a quicker solution with filers getting a complete bankruptcy in a few months. As for Chapter 13, the debts don't necessarily go away at once—they just get stretched out so that the payments are more comfortable. Chapter 13 can take several years to get through because of this.
Chapter 13: No Income Limitations
Just because you have a higher than usual income doesn't mean you don't need help with your financial situation. Many with incomes that are higher than the state median may not be allowed to file for Chapter 7. If the income is too high, Chapter 7 requires the filer to undergo a test to find out if they can qualify to file based on having higher than normal expenses. The means test determines whether the filer can file for Chapter 7 or must file Chapter 13 instead. Chapter 13 has no income limitations so filers of all incomes can file.
Chapter 13 Could Mean Fewer Property Losses
Chapter 7 means some filers could lose their home or other property because of being behind on their payments. If you are behind on secured debts, Chapter 13 provides an opportunity to negotiate that debt with the lender, reduce or eliminate old late charges and penalties, and get a better interest rate on the existing loan balance. With Chapter 7, filers must either catch up on their loan during the bankruptcy or risk losing their property.
Chapter 13 Provides Filers with a Moral Victory
Since most filers end up paying all or most of their debts under a Chapter 13 reorganization plan, they may feel better about the action. As to how future creditors view Chapter 13, they may or may not look upon filing Chapter 13 as taking more responsibility for debts than with the total discharge offered by Chapter 7. Chapter 13 stays on your credit report for a bit less time than Chapter 7 does as well. Chapter 13 filings will continue to show up for at least 7 years while Chapter 7 filings can appear for up to 10 years.
To find out more, speak to a bankruptcy lawyer about both Chapters of bankruptcy.
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