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Bankruptcy FAQ

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Jan 18, 2022 | Bankruptcy, Chapter 13, Chapter 7

Having a lot of debts can be overwhelming and pressuring. However, you can get this financial pressure off your shoulders by filing for Chapter 7 or Chapter 13 bankruptcy. Both of these chapters can offer you debt relief, but they are different in how they work. The right type of bankruptcy will depend on your current situation and how you want your debt discharge to be.

Understanding the difference

The main difference between Chapter 7 and Chapter 13 bankruptcy is the way you get rid of debts. In Chapter 7 bankruptcy, a trustee may sell some of your property and assets to repay your creditors. After nothing is left to sell, the rest of your debts will usually disappear. In Chapter 13 bankruptcy, you do not have to sell any property. Instead, you have to repay your debts over three to five years. These chapters are also different regarding the debts that the debtor can eliminate.

Pros and cons

Chapter 7 bankruptcy is faster and cheaper than Chapter 13 bankruptcy. In Chapter 7 bankruptcy, you can discharge your medical bills, credit card debt and personal loans. Other debts, like student loans or marital debts, are not eligible for discharge under this chapter. However, if you opt for Chapter 7 bankruptcy, your trustee might sell some of your property. As a result, you may lose your car or house unless their value is below Louisiana’s exemption limit. Lastly, not everyone is eligible to file for bankruptcy under this chapter.

On the other hand, Chapter 13 bankruptcy consists of a repayment plan that lasts from 3 to five years. Under this chapter, you would have to reorganize your finances and pay your creditors back without bothering you or pursuing your debts. Another benefit of filing under this chapter is that you can stop foreclosure of your home easier than in Chapter 7 if you are behind on mortgage payments. Also, you can repay debts that you cannot discharge under Chapter 13 bankruptcy, like court fees, marital debts and fees from a condominium.

The right chapter for you

Although Chapter 13 bankruptcy may sound more appealing, not everyone can afford to repay their debts. Additionally, some people decide to file for Chapter 7 bankruptcy because it implies a faster way to get rid of your debts. The right type of bankruptcy for you will depend on your specific circumstances. To ensure you make the right decision, consider seeking counsel from a legal professional.

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