Bankruptcy Pros And Cons: Chapter 7 VS Chapter 13

Understanding the Differences Between Chapter 7 and Chapter 13 in Towson, MD

When dealing with a lot of debt, you might hear about two main options: Chapter 7 and Chapter 13 bankruptcy. If you live in Towson, MD, and are drowning in debt, figuring out these two can be challenging.

Knowing the differences of Chapter 7 vs Chapter 13 is crucial for getting your finances back on track.

Quick Summary:

• Chapter 13 bankruptcy, also known as reorganization bankruptcy, helps you make a plan approved by the court to pay off debts gradually. That will protect your property and co-signers.
• Chapter 13 can help you eliminate debts, keep your home safe from foreclosure, deal with tax debts, and include support payments. But it might lower your credit score, make you pay for a long time, and only some debts get wiped out.
• Chapter 7 bankruptcy, also called liquidation bankruptcy, quickly clears debts without a payment plan. But you might have to sell some of your property and meet specific rules.
• Chapter 7 helps clear debts fast, stops creditors from annoying you, and keeps some of your property safe. However, you might lose necessary things, your credit score could drop, and not all debts disappear.
• Deciding which one is better depends on your financial situation and meeting the rules.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is creating a plan for your debts. The court sets it up to help you pay back what you owe in a manageable way.

Once you finish the plan, any leftover debts are wiped away. Creditors also cannot force you into another Chapter 13 case without your say-so.

The Pros

Chapter 13 bankruptcy offers several advantages:

• Eliminating Unsecured Debt: Chapter 13 helps settle debts like credit cards, medical bills, old utilities, rent, and personal loans by paying a small amount through the repayment plan. 
• Stop Foreclosure: By filing for Chapter 13, homeowners can stop foreclosure. They can catch up on missed mortgage payments to save their homes.
• Help With Tax Debt: Chapter 13 disperses income tax debt payments over three to five years. Some people might even get a discount on what they owe.
• Asset Protection: Chapter 13 lets you keep things like your home and car while you devise a plan to pay back what you owe.
• Co-signer Protection: If someone cosigned for you, Chapter 13 protects them from creditors chasing them. Your co-signers won’t be responsible for your debts.
• Helps Domestic Support Payments: You can include alimony and child support in your Chapter 13 repayment plan. It will help you not get in trouble with the law.

The Cons

Chapter 13 bankruptcy also comes with certain drawbacks:

• Impact on Credit Score: Filing for Chapter 13 might hurt your credit score. That will make it harder to borrow money in the short term.
• Low Payment Flexibility: In Chapter 13, you must use all your extra money to pay back your debts. If your income goes up, your payments might go up too. You can’t borrow more money during this time without the court’s approval. 
• Lengthy Repayment Plan: Chapter 13 makes you stick to a payment plan for three to five years, which can make dealing with money problems last longer.
• Limited Discharge of Debts: Unlike Chapter 7, Chapter 13 only eliminates debts if you finish the payment plan. That means not all your debts might go away.
• Court Oversight: During Chapter 13, the court observes your financial decisions until you finish paying back what you owe.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is when you give up specific property to a trustee who sells it to pay off your debts.

You can keep exempt property for a fresh start. Filing for Chapter 7 also stops creditors from trying to collect money from you through the automatic stay.

The Pros

The advantages of Chapter 7 bankruptcy include:

• Quick Discharge: In Chapter 7 bankruptcy, debts can be cleared quickly within four to six months.
• No Repayment Plan: Unlike Chapter 13, Chapter 7 doesn’t make you stick to a repayment plan. That makes you deal with debt faster.
• Automatic Stay: When you file for Chapter 7, it stops things like wage garnishment, foreclosure, debt lawsuits, and creditor harassment. 
• Debt Relief: Chapter 7 wipes out a lot of different debts, like credit cards and medical bills, helping you shake off big financial burdens.
• Exemption Protections: You might keep certain things safe from being sold off to pay debts, protecting what’s most important to you.

The Cons

Chapter 7 can lead to disadvantages, such as:

• Asset Liquidation: In Chapter 7 bankruptcy, things you own that aren’t protected might have to be sold to pay back what you owe. That could mean losing valuable property like your house or luxury items.
• Credit Impact: Filing for Chapter 7 can also hurt your credit score. That will make it difficult to borrow money or do well with your finances in the future.
• Non-dischargeable Debts: Some debts, like taxes or student loans, don’t go away with Chapter 7. You still have to pay them back, no matter what.
• Eligibility Requirements: To qualify for Chapter 7, checking how much money you make and spend is included for eligibility. If you make a lot of money, you might not qualify.
• Public Record: When you file for Chapter 7, everyone can see it. That might affect what people think of you and your future money plans.

Which Bankruptcy Option Should I File?

Deciding if you should go for Chapter 7 vs Chapter 13 bankruptcy depends on your unique financial situation. Here are some steps to help you figure it out:

Look at Your Income and Expenses

Add up how much money you make each month from your job, investments, and other sources. Then, write down all your monthly expenses like rent, utilities, groceries, and other things you must pay for.

Check Your Debts

Make a list of all the money you owe, including credit cards, medical bills, loans, taxes, and anything else you need to pay. Figure out which debts are most important, like taxes and child support, and which ones are unsecured, like credit card balances.

Think About Your Property

Take stock of what you own, like your home, car, retirement accounts, and personal belongings. See if they are protected under bankruptcy laws and how much they’re worth.

See If You Qualify for Chapter 7

Find out if you meet the income requirements for Chapter 7 bankruptcy. Decide if you’re okay with giving up some of your assets to pay off your debts.

Consider the Benefits of Chapter 13

Consider whether you have enough regular income to stick to a Chapter 13 repayment plan. Also contemplate the advantages of keeping your assets and restructuring your debts with a court-approved plan.

Look at Your Future Goals

Consider what you want in the long run, like owning a home, improving your credit score, or managing your taxes better. See how each type of bankruptcy can help you reach your financial goals.

The best choice depends on your income, expenses, debts, assets, and what you want for your financial future. By thinking about these things carefully and getting advice from a professional, you can pick the bankruptcy option that works best for you.

Call Our Bankruptcy Attorneys Today!

Having trouble with Chapter 7 vs Chapter 13? Deciding which one is better is a big deal in your financial journey. Our team at The Grafton Firm is here to help you understand the ins and outs of bankruptcy law.

We’re committed to supporting and helping you toward a better financial future. If you’re in Towson, MD, and need help filing for bankruptcy, we’ve got your back.

Whether you’re unsure about Chapter 7 or Chapter 13, getting legal advice from our bankruptcy attorneys can make a difference. Contact us for a free consultation today!