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How does Chapter 13 differ from Chapter 7 bankruptcy?

On Behalf of | Sep 15, 2022 | Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

If you have decided to file for bankruptcy, you may have the option to file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 13 bankruptcy differs from Chapter 7 in terms of eligibility criteria, as well as advantages and disadvantages.

Eligibility

Generally, a Chapter 13 bankruptcy is intended for wage-earners, or people who have a source of income but have just fallen behind on their payments. Some of the requirements for Chapter 13 bankruptcy are:

  • Not a business entity.
  • Do not exceed limits for secured and unsecured debt.
  • No Chapter 7 bankruptcy filing in the past eight years or Chapter 13 bankruptcy filing in the past six years.
  • No bankruptcy petition in the previous 180 days that was dismissed for certain reasons (e.g., failure to appear in court).
  • Employed and make enough income to cover debt payments.

Advantages

Chapter 13 bankruptcy gives you a chance to reorganize your debts and pay them back over time, rather than just discharging them altogether. Filing for Chapter 13 bankruptcy allows you to stop mortgage foreclosure, repossession of your vehicle, and the collection of your debts. In addition to keeping your property, you will be allowed to make smaller payments over the course of three to five years. You will make payments to a trustee who will distribute your payments and, therefore, you will not have to interact with creditors.

Disadvantages

A Chapter 13 bankruptcy takes much longer than a Chapter 7 bankruptcy, does not include all debt, and can stay on your credit report for up to 10 years. It also requires you to put every extra penny you have toward your debt. In other words, once you have covered your necessary expenses, any leftover money cannot be used for anything other than your debt.

It can be very difficult to make the decision to file for Chapter 7 or Chapter 13 bankruptcy on your own. Fortunately, there are qualified attorneys in Miami who can help you make this life-changing decision.

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