If you’re a consumer who is overwhelmed by overdue bills and collection letters, a Chapter 7 or 13 bankruptcy can provide the debt relief you need. Both provide automatic stays that stop foreclosures, repossessions, and wage garnishments immediately upon filing, yet it’s important to understand how they differ. Here are the distinctions between the two options that might help you decide.
Often called straight bankruptcy or liquidation, Chapter 7 offers a quick way to get rid of unsecured debt, such as medical bills, credit card debt, and signature loans. To qualify, you must take and pass a means test that evaluates your asset-to-debt ratio. Usually, filers have few or no assets the trustee can sell or liquidate to pay debts. You don’t make any additional payments to creditors, and you can claim exemptions for items including furniture, household goods, and personal possessions. Most petitioners receive debt discharges in four to six months after filing, which ends their cases and gives them a fresh financial start.
Chapter 13 bankruptcy, often called a wage earner plan, takes three to five years to complete. Filers must have a reliable income, such as paychecks, investment or rental property income, or disability payments. Debtors buying homes or cars or who own other property they want to keep often file Chapter 13, which is also available to individuals and married couples who don’t qualify for Chapter 7. With this option, you file a repayment plan that the court must approve. You or your attorney can negotiate cramdowns with creditors, which lower your overall balances except for first home mortgages. Once your payments are complete, the court discharges any remaining debts.
Whether filing Chapter 7 or 13 bankruptcy, having a skilled and experienced attorney helps the process go more smoothly. Attorney Rafael Gil III at The Gil Law Firm in Dothan, AL, offers almost 20 years of bankruptcy law experience to clients throughout Alabama, Georgia, and Florida. This firm has represented thousands of consumers and businesses, helping them obtain a fresh financial start. Stop struggling with debt and get long-term relief. Learn more about the firm’s services by visiting them online, or call (334) 673-0100 for a confidential consultation appointment to discuss your situation.