One of the most common questions I get about bankruptcy is “What is the difference between a chapter 13 bankruptcy case and a chapter 7 bankruptcy case. For this post we will discuss the differences and some of the factors that might affect whether you choose one or the other.
Chapter 7 bankruptcy allows you to eliminate all of your debt and you are not required to use any of your future income to make payments to your creditors. A chapter 7 bankruptcy case is extremely effective at eliminating unsecured debt, particularly credit card and medical bills. It has the additional advantage of taking less time than a chapter 13 case so that you get a fresh start within a few months of filing your case. However, as with all things, there can be a down side to filing a chapter 7case.
In exchange for the benefits of chapter 7 bankruptcy, you could be required to give up currently owned assets (houses, cars, cash, etc.) In most chapter 7 cases, you will not lose assets because the state of Georgia provides exemptions that will keep the bankruptcy trustee from taking your property, but it is important to know that it can happen. That is one reason it is important to work with an experienced Newnan bankruptcy attorney. I always take the time to help my clients understand the likelihood of losing property in a chapter 7 case.
A chapter 13 bankruptcy case allows you to reorganize debt and to pay back some debt over time. Why would you want to do this? Well, if you are behind on payments for your home or your car and want to keep it, then chapter 13 may be the type of case you need to file. Chapter 7 bankruptcy does not have a provision to allow you to catch up payments over time, but you can make up payments over time in a chapter 13 case. Chapter 13 bankruptcy laws also may let you adjust interest rates and reduce the amount you owe on cars and other items of personal property. Above I mentioned the slight chance that you can lose property by filing a chapter 7 case. You don’t have this worry in a chapter 13 case.
So how does the chapter 13 work? In a chapter 13 case you will take some income that you will earn over the next 3 to 5 years and use it to make payments on your current debt. The money is paid to your chapter 13 trustee. The chapter 13 trustee then disperses this money to your creditors based on the chapter 13 plan.
Of course there is much more to preparing and filing either a chapter 7 or chapter 13 case, but hopefully this information helps you to understand the basic idea behind each type of case.
If you would like to learn more about bankruptcy directly from me, I’m happy to sit down with you for a free 1 hour consultation.