Should you file a Chapter 7 or Chapter 13 bankruptcy? 

On Behalf of | Dec 3, 2022 | Bankruptcy

Debt can happen suddenly and often seemingly out of nowhere. It may be the result of unexpected medical debt – or maybe there was a necessary vehicle repair. However you built up the debt, you have a responsibility to pay it off. But, for many people, there may be too much debt to realistically handle.

Fortunately for debtors, there are several ways to easily and quickly remove debt: Chapter 7 and Chapter 13 bankruptcy. Ultimately, both forms of bankruptcy help debtors pay off their debt, however, they don’t work exactly the same way. Here’s what you should know: 

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is also known as “liquidation bankruptcy” because debtors may have to liquidate some assets to pay off their debts. Many debtors shy away from liquidation bankruptcy often because it sounds like they may lose all their assets – but, that is far from true. Assets are either considered exempt or nonexempt from seizure – and most people who file Chapter 7 don’t have many nonexempt assets.

Exempt assets may include clothing, trade tools, a used vehicle or a home. While nonexempt assets are anything that may be considered excessive: a second home, unused land, an art collection or a second vehicle. 

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a kind of refinance plan. It looks at a debtor’s debt and evaluates and refinances the payment obligations. After three to five years of payments, the remaining debts are discharged. 

This is often the kind of bankruptcy people take if they’re able to pay off some debt but not all of it – or if they have significant assets they hope to keep that would otherwise be lost in Chapter 7. It can also help debtors in danger of foreclosure keep their homes.

It’s hard to know if you’re picking the right bankruptcy plan for you. You may need to reach out for legal help when committing to a bankruptcy plan.