Chapter 7 vs Chapter 13
A Comprehensive Guide to Understanding Chapter 7 vs. Chapter 13 Bankruptcy in Dublin, Ohio
When facing financial difficulties, filing for bankruptcy may become the most attractive solution to get a fresh start financially. However, deciding which type of bankruptcy to file can take time and effort. In Dublin, Ohio, two types of bankruptcy are available for individuals and families: Chapter 7 and Chapter 13.
Filing for bankruptcy can be a very daunting decision and the more you understand, the better decision you will make. There are two types of bankruptcies that individuals can file, Chapter 7 and Chapter 13. Regardless of the chapter, debt is characterized into 3 categories:
Secured: Debt that is secured by a house, car, business assets, etc.
Unsecured: Credit cards, medical bills, student loans
Priority: Most tax debt and all domestic support obligations like child support.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy provides individuals and small businesses relief from most unsecured debt. It will not eliminate student loan debt, however it can eliminate tax debt depending on the type of tax, if you have filed all your tax returns, and when the tax return was originally due. Most clients come into my office thinking they will lose their car or house if they file Chapter 7 but this is not true. If you are up to date on your monthly mortgage and car payments, you can enter into an agreement with the creditor to retain those possessions and continue to pay each month. This is called reaffirming the debt.
Chapter 7 can also provide a benefit to business owners who have personally guaranteed business debt. Freeing yourself from old business debt can provide you with the fresh start you need to leave financial worries behind.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, or reorganization bankruptcy, focuses on reorganizing debt into a structured repayment plan. Individuals must have a stable income and debts that do not exceed certain limits to qualify for Chapter 13 bankruptcy. Most individuals can keep their homes and other assets. Still, debt payments must be made over a three to five-year period, during which no debts are discharged until the repayment plan is successfully executed.
A Chapter 13 bankruptcy can provide relief from secured debt. It is essentially a “reorganization” of debt. For example, if you are behind on your mortgage payments, we can use chapter 13 to create a plan that will get you current. If you are paying the payment according to the plan, your mortgage holder can’t foreclosure on the house. In some cases, if your car is worth less than what you owe for it, chapter 13 could be used to pay the value instead of the balance owed. This creates a lower monthly car payment and gives you more money each month to pay other household bills. Chapter 13 is the best option for someone who is facing foreclosure or repossession.