One difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 is mostly for individuals or businesses with no hope of paying any of their debts. Chapter 13 is for debtors who might be able to pay back some of what they owe through a structured payback plan. Most importantly, for individuals, Chapter 13 will generally allow you to keep all of your assets, whereas Chapter 7 can sometimes lead to the liquidation of certain assets
This article will provide a brief overview of the differences between Chapter 7 and Chapter 13 bankruptcy. It will also explain how a lawyer can help you with your bankruptcy petition.
Understand Why People and Businesses File for Bankruptcy
If an individual or a business is deep in debt with little to no chance of paying it all back, filing for bankruptcy can protect their remaining assets and allow them to turn over a new financial leaf.
While bankruptcy can free you from crushing debt, it is not without consequence. For example, your credit score will suffer, making it more difficult for you to secure loans or make big purchases for some period of time in the future. For this reason, some consider bankruptcy as a last resort once all other attempts at debt reduction and management have failed.
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Chapter 7 and Chapter 13 Approach Bankruptcy Differently
There are many differences between Chapter 7 and Chapter 13 bankruptcy. A few notable differences are highlighted below.
Who May File
Chapter 7 is available to all individuals and businesses, while Chapter 13 is available to individuals and sole proprietorships only.
In Chapter 7 bankruptcy, all of your nonexempt assets will be liquidated. This may sound scary, but according to the U.S. Courts, the vast majority of individual Chapter 7 cases involve only nonexempt assets. Thus, you typically will not have to liquidate any of your assets if you file for Chapter 7 as an individual.
Chapter 13 bankruptcy does not involve liquidation of assets. Instead, you will be given a chance to pay back part of your debt over a period of several years. Any debt remaining after the established time period does not need to be repaid.
What Must Be Repaid
There are some debts that neither Chapter 7 or Chapter 13 bankruptcy can eliminate. For example, while medical debt can be erased—or “discharged”—by bankruptcy filings, student loans cannot under current bankruptcy law. If bankruptcy cannot eliminate the type of debt you are struggling with, you will have to consider other options for those specific debts.
Get Legal Help from a Law Firm that Handles Bankruptcy Cases
According to the U.S. Bankruptcy Court for the Middle District of North Carolina, you can file for bankruptcy by petitioning the bankruptcy court. While you can do this on your own, it is a good idea to hire a lawyer. As you have already seen, bankruptcy is a complicated subject. A lawyer can explain more about the pros and cons of each bankruptcy chapter so that you can make the best decision for yourself and your family.
Among other things, your lawyer can:
- Help you decide a course of action: If there is any way besides bankruptcy to resolve your financial situation, a lawyer can help you find and implement it.
- Handle paperwork: Filing for bankruptcy involves submitting forms and lists of your assets, among other things. A lawyer can organize and submit your paperwork in a timely manner.
- Settle disputes: Your lawyer can handle disputes and go to court on your behalf. For example, if there are any disagreements about the liquidation of your assets, a lawyer can help settle them.
- Give advice: Confused by bankruptcy laws and options? Feel free to discuss your concerns with your legal team. Part of our job is to address your concerns and help you make intelligent, informed decisions about your case.
Even if you are not ready to take any big steps, a law firm can still be of assistance. Many law firms offer free case evaluations. All you have to do is call the firm and tell them about your situation. In exchange, the firm can let you know what your options are and what steps they can take on your behalf if you decide to hire them.
At Farmer & Morris Law, PLLC, we understand that filing for bankruptcy is incredibly difficult for a number of reasons. If you need help petitioning for bankruptcy, or if you still have questions about what the difference is between Chapter 7 and Chapter 13 bankruptcy, contact our Rutherfordton, North Carolina, office at (828) 286-3866.