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What Are The Differences Between Chapter 13 and Chapter 7 bankruptcy?

Most individuals file for bankruptcy relief under Chapter 7 or Chapter 13. Companies may also file under Chapter 7; however, the company ceases to operate when the company files a Chapter 7 bankruptcy case. If you are unsure whether a Chapter 7 or Chapter 13 bankruptcy case is best for your financial situation, it is best to consult with a Jacksonville bankruptcy attorney before filing anything with the bankruptcy court.

In this article, our Jacksonville bankruptcy attorney discusses:

  • What is a Chapter 7 Bankruptcy?
  • What is a Chapter 13 Bankruptcy?
  • Chapter 7 vs. Chapter 13 – Which Bankruptcy Chapter is Best for You?

What is a Chapter 7 Bankruptcy?

Chapter 7 of the Bankruptcy Code is often referred to as the liquidation bankruptcy chapter. The term “liquidation” may be used to describe a company filing a Chapter 7 case. The business assets are sold, and the proceeds are distributed to the company's creditors.

Unfortunately, the term liquidation intimidates some individuals and prevents them from seeking bankruptcy advice. They fear that they will lose everything if they file a Chapter 7 bankruptcy case.

In reality, most Chapter 7 cases filed in Florida are no asset cases. In a no asset case, the debtor keeps all property while getting rid of debt. A no asset Chapter 7 case can be completed within four to six months after filing the bankruptcy petition. Creditors holding discharged debts cannot take any action to collect the debt. However, secured creditors, such as creditors who hold mortgages or liens on vehicles, can repossess or foreclose if the debtor does not continue paying the debt. A Chapter 7 case does not void a valid lien such as a mortgage or title loan.

What is a Chapter 13 Bankruptcy?

On the other hand, a Chapter 13 bankruptcy is a reorganization bankruptcy. Debtors propose a bankruptcy plan that reorganizes most of their debts into one monthly payment. Debts that are often included in a bankruptcy plan are:

  • Past due mortgage payments
  • Car loans
  • Tax debts
  • Medical bills
  • Personal loans
  • Credit card debt
  • Past due alimony or child support payments
  • Old utility bills
  • Judgment debt arising from consumer debts

Some debts are paid in full through a Chapter 13 plan, such as mortgage arrearage, some car loans, tax debts, and past due support payments. However, general unsecured debts such as credit card debt and medical bills receive a small percentage of the amount owed on the account. When you complete your Chapter 13 bankruptcy plan, the remaining balances owed on eligible accounts are discharged. Creditors of discharged debts cannot try to collect those debts.

Chapter 7 vs. Chapter 13 – Which Bankruptcy Chapter is Best for You?

There are advantages of filing under both bankruptcy chapters. A Chapter 7 case is finished quickly and gets rid of most unsecured debts without requiring any payments to those creditors. However, you must meet income requirements to qualify for a Chapter 7 case. You could lose property that is not exempt, and a Chapter 7 cannot stop foreclosure and repossession actions unless you can catch up the payments in full.

A Chapter 13 bankruptcy case typically takes five years to complete because most bankruptcy plans require 60 payments. Even though you are required to pay back some of the debt you owe and you are in bankruptcy longer, filing under Chapter 13 can save your home and your vehicle. You can also protect property that has non-exempt equity; catch up past due domestic support payments; and, pay back taxes over 60 months.

Deciding whether a Chapter 7 or Chapter 13 bankruptcy case is best for your financial situation can be complicated. A detailed financial analysis may be required to determine which bankruptcy chapter offers the best debt relief option for you. If you are considering a Chapter 7 case, you must pass the Means Test (income eligibility). However, if you want to file under Chapter 13 to stop foreclosure or repossession, you must have sufficient income to fund a Chapter 13 bankruptcy plan.

A Jacksonville bankruptcy attorney will perform a financial analysis to determine what bankruptcy option is best for you. An attorney reviews bankruptcy exemptions to identify any property that could have equity that exceeds the limits of the bankruptcy exemptions. A Jacksonville bankruptcy lawyer also ensures that you qualify for either a Chapter 7 or Chapter 13 case.

Consult a Jacksonville Bankruptcy Lawyer About Debt Relief Options

Dealing with debt collectors can be frustrating and frightening. Knowing that you cannot pay your debts, no matter how hard you try, is overwhelming. However, there may be an affordable solution to your debt problems.

Filing for bankruptcy relief can help you get the fresh start you need to overcome a financial crisis. Through a Chapter 7 or Chapter 13 case, you can get out of debt and keep your property so that you can build a strong financial base for you and your family.

Contact The Law Offices of Justin McMurray, P.A. by calling 904-248-4482 or using the contact form above to request a free consultation with our Jacksonville bankruptcy lawyer. We help individuals, couples, and businesses obtain the debt relief they need.

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