Types of Bankruptcy: Chapter 7 vs. Chapter 13

When considering bankruptcy, it’s important to understand the differences between Chapter 7 and Chapter 13 bankruptcy. Each type of bankruptcy offers distinct advantages depending on your financial situation.

Chapter 7 Bankruptcy:

• Liquidation of assets: In Chapter 7, the court may liquidate (sell) some of your assets to pay off your creditors. However, many people keep their personal property through exemptions.
• Fast process: Chapter 7 typically takes a few months to complete, making it a quicker option for those looking for immediate relief from debt.
• Ideal for low-income individuals: If you don't have many assets and your income is low, Chapter 7 may be the best option for wiping out most unsecured debts (credit cards, medical bills).

Chapter 13 Bankruptcy:

• Repayment plan: Instead of liquidating assets, Chapter 13 establishes a repayment plan where you make monthly payments to your creditors for 3 to 5 years.
• Helps protect assets: If you have significant assets (such as a home or car) that you want to keep, Chapter 13 allows you to keep them while catching up on overdue payments.
• Ideal for people with steady income: Chapter 13 is best for individuals with a regular income who can afford to make monthly payments towards their debts.

How Bankruptcy Can Help Stop Foreclosure

Bankruptcy can provide immediate relief from foreclosure. When you file for bankruptcy, an automatic stay goes into effect, which stops all collection activities, including foreclosure. 

• Automatic stay: This stay temporarily halts foreclosure proceedings, giving you time to catch up on missed mortgage payments or explore other options like a loan modification.
• Save your home: In Chapter 13 bankruptcy, you can work out a plan to pay off the overdue mortgage balance over time, preventing foreclosure and allowing you to keep your home.

The Role of a Bankruptcy Attorney

A bankruptcy attorney can play a crucial role in guiding you through the process. Here’s how they can help:

• Filing paperwork: Bankruptcy involves a lot of paperwork, and your attorney will ensure it’s completed accurately and submitted on time.
• Negotiating with creditors: They can help negotiate with creditors to potentially reduce your debt or set up manageable repayment plans.
• Legal guidance: They explain your options and ensure you understand the consequences of each choice, helping you make informed decisions.

How Bankruptcy Affects Your Credit

Bankruptcy can impact your credit score, but it doesn’t necessarily mean your financial future is over.

• Credit score impact: Filing for bankruptcy will cause your credit score to drop, but the exact amount varies depending on your credit history.
• How long it stays: A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while Chapter 13 remains for 7 years.
• Rebuilding your credit: After bankruptcy, you can take steps to rebuild your credit, such as:
  • Paying bills on time.
  • Keeping credit card balances low.
  • Securing a secured credit card or small loans to demonstrate responsible credit use.

With time and responsible financial habits, you can start to improve your credit and regain financial stability. 

FAQ About Bankruptcy 

• Will I lose all my property if I file for bankruptcy? 
  Not necessarily. In Chapter 7 bankruptcy, some of your property may be sold to pay off creditors. However, many people can keep important assets like their car or home through exemptions. In Chapter 13, you keep all of your property, but you’ll have to make payments according to the repayment plan.
• Can I file for bankruptcy if I have a steady income? 
  Yes, if you have a steady income and your debt is too overwhelming, you can file for Chapter 13 bankruptcy. This type allows you to keep your property while working out a manageable repayment plan with your creditors.
• Can bankruptcy help me with business debt? 
  Yes, both Chapter 7 and Chapter 13 can be used to address personal debt related to a business. If you’re a small business owner, you can file for bankruptcy to eliminate business-related debts or set up a repayment plan. If your business is a separate legal entity (like an LLC or corporation), the business may file for bankruptcy separately.
• How long does it take to discharge debt in Chapter 7 bankruptcy? 
  Chapter 7 bankruptcy typically takes about 3 to 6 months to complete, depending on your case. Once the bankruptcy is finalized, most of your unsecured debts will be discharged, providing you with a fresh start.
• Can bankruptcy help me with IRS debt or back taxes? 
  In some cases, Chapter 7 or Chapter 13 bankruptcy may help discharge or reduce IRS debts. If the tax debt is older and meets certain criteria, it may be eligible for discharge. However, some taxes, such as recent ones or fraud-related debts, are generally not dischargeable.
• How do I know if bankruptcy is the right choice for me?
   If you are overwhelmed by debt, facing foreclosure, wage garnishments, or harassment from creditors, bankruptcy could be an effective way to find relief. A bankruptcy attorney can assess your financial situation and help you understand if bankruptcy is the right option.
• Will my creditors know when I file for bankruptcy? 
  Yes, your creditors will be notified when you file for bankruptcy. However, after the filing, the automatic stay goes into effect, meaning they must stop all collection activities, including phone calls and lawsuits. 

Stop the Harassment!
Reach out to Pioneer Law Office at tel:(563) 649-4073 for a free evaluation and start your path to financial freedom!