Taking a high-interest loan or a credit card seems the only viable choice when it comes to supporting a family or, running a business, in the era of skyrocketed cost of living.
If you further add escalating medical bills, job loss, divorce to the existing personal debt, then you will most probably find yourselves in a debt.
However, before treading on the route of bankruptcy, you must consider all alternatives. It’s crucial for you to undergo a credit counseling session with a professional bankruptcy lawyer before reaching a final decision.
A lawyer analyses your financial history and preferably suggests you to opting for debt consolidation and debt settlement if you are eligible.
Bankruptcy offers you a promising solution in a situation where you are on the verge of losing your valuable assets and properties to the creditors.
In this article, we will explain the differences between the Chapter 7, 11 and 13 of Bankruptcy. Give it a read and we ensure, it will help you in taking the right decision.
Before moving further, let’s have a brief idea about various types of Bankruptcy:
Chapter 7: Filing this bankruptcy will clear out your unsecured debts. However, if you own valuable assets, then you might have to repay your creditors.
Chapter 11: This type of Bankruptcy is ideal for individuals with high net-worth. Chapter 11 temporarily protect your businesses giving you time to restructure your finances.
Chapter 13: Requires repayment to creditors either fully or partially. Mostly useful for both secured and unsecured debts.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy also goes by the name 'Straight Bankruptcy' or 'Liquidation Bankruptcy'. It is one of the most common and preferred bankruptcy.
Chapter 7 is preferred when the aim is to get discharged from unsecured debts. Chapter 7 Bankruptcy is applicable whether you own any valuable assets or not.
In case you own, all your nonexempt assets will get liquidated and distributed within your creditors.
Qualifying yourselves to apply for Chapter 7 requires passing a Means Test from your end. Also, if you fall under the high-income group, then you are ineligible for Chapter 7.
Income wise, your earnings must include less than similar sized households currently present within your community.
Before filing under Chapter 7, you must consult a professional lawyer ensuring if your marginal income complies according to the state’s law or not.
The limit of income differs on the basis of the number of people in the household. For example, the legal marginal income limit of a single individual is lower than a four-person household. The government also keeps on updating these income limits, so make sure you stay updated with the updates.
Faster discharge of unsecured debts in Chapter 7 Bankruptcy makes it one of the most preferable Bankruptcy Filing option. However, if you possess nonexempt assets might have to lose these assets to the creditors.
Moreover, the liquidation bankruptcies will remain in your credit report for at least 7 years.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy includes a repayment plan that allows you to get discharged partially or completely from your debts within three to five years.
If your income falls short compared to the median limit then your bankruptcy will last for three years, otherwise, you will be assigned with five years’ repayment plan, by the court.
Chapter 13 Bankruptcy helps you retain your property and get discharged from debts faster than Chapter 7.
Also, if you are unable to keep up with your mortgage payments, then the bankruptcy will stop the foreclosure process. So, not only you get to keep your home but also receive some time to catch up with your late payments.
Chapter 13 is an ideal choice for addressing both secured and unsecured debts. However, the discharge period is short, you are still liable to repay all your priority debts including some of your nonpriority debts as well.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy is applicable to businesses and individuals with a large number of debts or income.
Chapter 11 focuses on protecting the assets and properties of individuals and businesses by restructuring their finances. Although the process consumes a lot of time and money, it let you control your assets during the bankruptcy period.
You are eligible to file the petition voluntarily and so is your creditors (on your behalf).
Before filing the petition, you must formulate a repayment strategy with your lawyer and financial advisor, ensuring that your lenders must agree to the proposed strategy.
You improve your finances; you might strategize with your creditors by asking them you lower your interest rates or suspend your payments until your finances exhibit some improvements.
Filing Chapter 11 allows you to control your assets, protects you from lawsuits & foreclosures, and safeguards your property from liquidation. Furthermore, you can earn profits from your investment in the meantime.
Hopefully this article explained enough for you to understand the differences between Bankruptcy Chapter 7, 11 And 13. If you have any other questions please contact us for a free consultation.
Note: This article is only for informational purpose. We recommend you to consult a professional Bankruptcy Attorney if considering Bankruptcy as an option.