How does Chapter 13 bankruptcy compare to Chapter 7 bankruptcy?

Whether it is due to a job loss, medical debt, credit card bills or a mortgage, there are many reasons why people in Roanoke may be in serious financial trouble. These problems are only exacerbated when debt collectors start calling, their utilities are turned off or they are facing foreclosure. Fortunately, there is a way to address these problems and obtain a fresh financial start: filing for bankruptcy.

Generally, there are two types of bankruptcy a person can choose from. In a Chapter 7 bankruptcy, a person can keep certain exempt assets. Their remaining assets are liquidated, and the proceeds used to pay their creditors. When the process is complete, many types of debts will be discharged. It is a short process, taking only three to six months to complete.

Another type of bankruptcy is a Chapter 13 bankruptcy. Under this type of bankruptcy, a debtor will not have their assets liquidated. Instead, a three to five-year repayment plan will be established by the court. Assuming the debtor makes all payments required by the plan, once the length of the plan is complete, many remaining debts are discharged.

People may wonder why one would choose Chapter 13 -- where they must keep paying for years -- over Chapter 7 -- where they no longer pay certain debts at all. Well, each type of bankruptcy has its benefits and drawbacks. Chapter 7 bankruptcies are generally quick and immediately address the fact that the debtor cannot pay back many of their secured and unsecured debts. Keep in mind, however, that in a Chapter 7 bankruptcy, a debtor may lose non-exempt assets and not all types of debts will be extinguished.

While a Chapter 13 bankruptcy means a debtor will be making monthly payments to a bankruptcy trustee, these payments are set at a level that is manageable. The debtor will not lose assets and may be able to stop repossession and foreclosure proceedings. Finally, co-signers are protected through a Chapter 13 bankruptcy if the debtor is abiding by their repayment plan.

In the end, deciding whether to file for Chapter 7 or Chapter 13 bankruptcy is a personal matter. No two cases are alike, so the type of bankruptcy that may be advantageous in one situation may not be advantageous in another situation. Bankruptcy is a complex topic, so debtors may want to make sure they understand all their options before proceeding.

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Wilson C. Pasley, PLC
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