"Chapter 7 and Chapter 13: Which Option is Right for You?"

When most individuals file for bankruptcy relief, their primary aim is to find a swift resolution so that burdensome debt is wiped out, lawsuits stopped and garnishments terminated, which then clears the way for a more stable financial future.

In this regard, Chapter 7 and Chapter 13 tend to be the most common choices for individuals seeking relief, which is why understanding the nuances between the two is crucial for anyone considering bankruptcy as the solution to regain financial stability.

CHAPTER 7 BANKRUPTCY: HOW IT WORKS

A Chapter 7 bankruptcy proceeding is relatively quick. After meeting with the attorney to analyze the individual’s financial circumstances, from start to finish the Chapter 7 process can be over in about 100 days. In most cases, the only interaction that an individual will have is with the Chapter 7 trustee - sometime between 21 and 40 days after filing the petition -  who will ask a series of questions that are mostly aimed at determining whether the information on the bankruptcy petition and schedules is truthful.  Each Chapter 7 trustee conducts his or her meeting a little differently, but the substance of each meeting will be the same.

Who is qualified to file a Chapter 7? The general rule is that those with income less than the median income for the state are qualified for Chapter 7. If an individual earns more than the median income, Chapter 7 relief is still possible, but the individual must undergo "means testing" to determine if filing under Chapter 7 is presumed to be abusive of the bankruptcy system.

It is always recommendable to schedule a consultation with an attorney specializing in bankruptcy to help you understand the requirements based on your specific situation.

CHAPTER 13 BANKRUPTCY: HOW IT WORKS AND WHY IT MAY BE THE BEST CHOICE

A Chapter 13 bankruptcy proceeding is definitely longer than a Chapter 7 and it is based upon a debt reorganization plan.

So why filing a Chapter 13 bankruptcy case that will commit an individual to making payments to creditors over a 3-5 year period should be more convenient?

Here's three valid reasons to take into consideration before making a decision:

1. Chapter 13 offers certain advantages that Chapter 7 does not. For example, at least in some jurisdictions, tax debts can be repaid over a five year period without accruing additional penalties and interest. For individuals who have divorced, property settlement agreements are dischargeable in Chapter 13 but are not dischargeable in Chapter 7.
   

2. If an individual owns a home or motor vehicles with substantial equity (equity beyond the value of any applicable exemption), and wants to keep that property from being sold to satisfy their debts, Chapter 13 allows that individual to keep their home and repay creditors at over a period of up to 5 years. In short, Chapter 13 prevents homelessness.
   

3. Some individuals just earn too much money to be eligible for Chapter 7 relief. In this respect, Congress enacted “means testing” in Chapter 7, the calculation for which can be both complex and silly. The purpose of the means test, however, is quite simply: those that can pay, should pay. And the means test is there to help root out those who might be seen as abusing the bankruptcy system by filing for Chapter 7.

If you are a consumer in Ohio, West Virginia or Pennsylvania in doubt about whether you should file bankruptcy, and under what Chapter to file, please contact us to schedule a complemental 30-minute consultation.