Chapter 7 v. Chapter 13: Which Bankruptcy is Right for Me?

US BANKRUPTCY COURTWhen considering a bankruptcy, you and our attorneys will work together to fashion a bankruptcy that best fits your situation. So what is the difference between the available types of bankruptcies?

 Chapter 7: Liquidation

A Chapter 7 bankruptcy is commonly referred to as a “liquidation” of your debts; it allows you to walk away from your debt and get a fresh start. You will be able to hang onto mortgages and car loans, permitting you are current with those creditors and there is limited equity in the assets. In a Chapter 7, you walk away from your “unsecured” creditors, those are your credit cards, payday/cash advance loans, and medical debt. You will still be responsible on most tax debt, student loans, and even tickets.

When the bankruptcy laws changed in October 2005, many people had the misconception that Chapter 7 was no longer available. Chapter 7 is very much alive and accessible to you, but there are some notable revisions. The primary change comes from the income qualification of a Chapter; the court now looks at the entire household income, even if just one person is filing. That includes looking at your spouse’s income, or even if you have a parent living with you that gets Social Security, the entire household income is reviewed…but so is the entire household expenses. Also, you will not be able to file another Chapter 7 for eight years (not that anyone intends to have to go through this process again).

 Chapter 13: Reorganization

A Chapter 13 is a “reorganization” of your debt; it takes all your debt, puts it under one big umbrella, and starts to repay it. These bankruptcies are most common when you have fallen behind on mortgages or car loans, and you want to keep the property. The Chapter 13 bankruptcy gives you an option to catch up on these creditors without risk of foreclosure or repossession.

Another key advantage to Chapter 13 deals with our housing market. A Chapter 13 bankruptcy allows us to remove junior liens on properties. If your home is worth less than what you owe on a first mortgage, upon successful completion of your repayment plan, a junior lien can be removed.

How is this different than a debt consolidation? Simply, a Chapter 13 is legally structured; that means your creditor cannot tell you “no”, they have to be a part of this case and they have to be repaid under the terms of the Court – even if they don’t like it. Also, there is no risk of a 1099c foregiveness of debt liability – a little talked about loophole in debt consolidation.

Please contact our Westchester Bankruptcy Attorneys today at (914) 864-2465 or (845) 628-4301 to discuss which option is right for you. Our Westchester bankruptcy lawyers will work with you to manage your debt and help you through your bankruptcy filing.


photo by: Fried Dough