Although you might be generally familiar with the concept of bankruptcy, you may not be aware that there are different options for filing. When a person visits an attorney for assistance because they can’t pay their debts, they can either file for Chapter 7 or 13 bankruptcy. Here’s what you need to know about how they differ.

Chapter 7

Filing for Chapter 7 bankruptcy provides the individual or business with a path to paying off their debts through liquidation. This program is traditionally used by those with limited streams of income, as they cannot provide the funds needed to pay back some or all of the debts that they owe. To qualify, the person must simply meet a specific minimum income requirement. For many individuals, it’s simply the smartest choice if they can’t manage their credit card debts, personal loans, or medical bills. The debtor may lose their assets when they file for Chapter 7 bankruptcy, such as their residence and vehicle. In some cases, however, these items could be returned to the debtor if they can arrange to pay the wholesale price. It generally takes approximately three or four months for all debts to be discharged.

Chapter 13 

For those who earn too much to qualify for Chapter 7 bankruptcy, they can file for Chapter 13 instead. This program is a form of reorganization instead of liquidation, as it allows the debtor to attempt to repay their debts through a specific payment plan. In this situation, the person keeps their assets while slowly paying their dues back. Unlike Chapter 7, which businesses can file, only individuals and sole proprietors may file for Chapter 13. This plan provides the debtor with several significant benefits that Chapter 7 does not, such as the ability to remain in the house, keep the car, and catch up on missed vehicle and mortgage payments. Once the payments are complete, the debts are discharged; this typically takes anywhere from three to five years.

If you’re concerned that you might need to file for bankruptcy, you can trust the attorneys at O’Connor, Mikita & Davidson LLC in Cincinnati, OH. These qualified professionals offer over 20 years of industry experience and are prepared to assist during the next step of your financial journey. You can visit them online to find out more about how they can help you, or give them a call at (513) 793-5297 to schedule a consultation.