If you are considering bankruptcy as an option for your financial situation, you should know there are a few options. Chapter 7 bankruptcy and Chapter 13 bankruptcy are two of those options, which we have outlined and compared below.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a liquidation process where a person’s assets are sold and the proceeds from those sales are used to pay off as much debt as possible. Chapter 7 bankruptcy results in the successful elimination of most types of unsecured debts including credit card bills, medical bills, payday loans, old utility bills, etc.
Chapter 7 bankruptcy is usually better option if you can qualify under the chapter seven guidelines (the average person does not qualify). This chapter of the bankruptcy code allows for complete relief from most types of debt in about three to six months. Under chapter seven bankruptcy, there is no repayment plan and none of your unsecured debts will be forgiven.
Chapter 13 Bankruptcy
In contrast, Chapter 13 bankruptcy is a repayment process where a person’s debts are reorganized and restructured to provide for smaller monthly payments over an extended period of time.
Instead of having his or her assets liquidated, the debtor will instead keep those assets and use them as collateral to finance a repayment plan. Under this chapter, you can expect to see your unsecured debts reduced by at least 60% or more. Common debts included in Chapter 13 bankruptcy are typically mortgages, car payments, personal loans and unpaid taxes.
Under Chapter 13 bankruptcy, you will have a repayment plan that can span anywhere from three to five years. The longer the time before settlement, the less you’ll be required to pay each month. However, you will need to pay a lawyer in order to complete the process.
Chapter 7 bankruptcy is usually less expensive when compared to chapter 13 bankruptcy since there are far fewer administrative fees and much lower attorney’s fees.
Under Chapter 13 bankruptcy, attorney’s fees can run between $3,500 and $6,000 (or more) and filing fees can range anywhere from $335 to $1,300 (or more). The attorney’s fees and filing costs under Chapter 13 bankruptcy can be waived if you cannot afford them.However, since most people who file for Chapter 7 bankruptcy are usually not required to use an attorney, it follows that most people qualify for the fee waiver.
As with any bankruptcy, the only way to know which chapter is right for you is by consulting a bankruptcy attorney who can help determine if either chapter will work best in your situation. Consultation with an experienced bankruptcy lawyer is free of charge and will allow you to make an informed decision before moving forward with the process.
Contact Mellor today if you are looking for an experienced bankruptcy attorney that can help you with their expertise and experience.