Chapter 7 vs Chapter 13
While there are several chapters of bankruptcy, most people choose one of two options: Chapter 7 or Chapter 13. The results are similar and will bring you relief from your debts, but there are some important differences that you’ll need to understand when you are considering your financial options. The team members at First America Law can help you cut through the clutter and make the choice that will bring you financial freedom.
Chapter 7 Bankruptcy
This is often called a straight bankruptcy and is the fastest, simplest form of bankruptcy. In order to qualify for a Chapter 7 bankruptcy, you will need to pass a means test. You also will not be eligible to file for Chapter 7 bankruptcy if you have had a previous Chapter 7 bankruptcy discharge in the last eight years.
Within 6 months before you file your bankruptcy, you must complete an approved credit counseling program. As soon as you file your Chapter 7 bankruptcy petition, you will be protected by an automatic stay. This is an order that prevents the majority of your creditors from continuing their collection efforts. A bankruptcy trustee will also be appointed. The trustee will review your papers and any supporting documents and will administer your case.
Exempt and Non-Exempt Property
Your non-exempt assets must be surrendered and sold, and the funds from those sales will be distributed among your creditors based on established priority. Not all property is subject to liquidation. Some items are considered exempt, such as most household goods, clothing and electronics. In some cases, your home and vehicle could also be considered exempt if you do not have substantial equity. Your attorney at First America Law will review all of your information and advise you whether you have any non-exempt assets.
Calls from bill collectors can be tough to handle for any person, but once you file for Chapter 7 bankruptcy, these calls should end. Federal law prohibits bill collectors from harassing you.
Candidates for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an excellent option for people with low incomes and few or no assets.
After Chapter 7 Bankruptcy
Although the bankruptcy can remain on your record for up to 10 years, you will be able to begin reestablishing your credit right away. Interest rates and fees might be higher than before you filed, but by comparing and contrasting the various costs associated with a new card or loan, you can choose only those that will ultimately improve your credit score and help you rebuild your finances. Check that each of your creditors provides regular reports to the credit bureaus, and you’ll soon see your score going up.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy works a little differently. If you want to file for Chapter 13 or a reorganization, you’ll need to begin with an approved credit counseling course within 6 months before you file your petition just like you would if you had filed for Chapter 7 bankruptcy. In a Chapter 13 case, you file a plan that provides for a monthly payment to your creditors that can last anywhere from 3-5 years.
What Happens after Chapter 13 Bankruptcy?
Once you complete your repayment plan, most of your remaining debts will be discharged. The bankruptcy will also appear on your credit report for up to 10 years after you file. However, Chapter 13 bankruptcy may be less damaging to your credit than other chapters since you have paid back some of your debts. Once you complete your plan, you can also begin to rebuild your credit. When comparing and choosing loans or credit cards, make sure to look for creditors who will report your on-time payments so that your score will increase more quickly.
Which Bankruptcy Option Is Right for You?
If you are under extreme financial stress, the last thing you probably want to do is spend hours researching and finding solutions. At First America Law, we can ease your stress and financial burden. At your free consultation, we can help you understand the differences between the types of bankruptcy so that you can choose the one that will be most beneficial for your situation. Call us at 1-800-695-7674, and get back on the road to good financial health and a solid future.