The terms “Chapter 7” and “Chapter 13” come from the Bankruptcy Code, which is part of the body of federal laws called the United States Code. The difference between the two concerns the status of the bankrupt individual’s debts following a successful litigation. With a Chapter 7 bankruptcy filing, also known as “straight bankruptcy,” most types of unsecured debt are eliminated, including medical bills, credit card balances and personal loans. With a Chapter 13 bankruptcy filing, unsecured debts are consolidated and the individual has the option of paying them back without accruing additional interest.
Advantages to Filing for Chapter 7 Bankruptcy
If you do not have a great deal of property and find that you are having difficulty purchasing necessities such as food and clothes, you should ask your bankruptcy attorney if Chapter 7 might be better for you. Chapter 7 bankruptcy litigation is usually a much faster process than that associated with Chapter 13, usually taking only three to six months to complete. The individual becomes free of debt except for house payments, car payments, student loans, new taxes and child support balances. Most individuals also get to keep their property under a Chapter 7 filing, though you should discuss this with your dedicated bankruptcy attorney.
Am I Eligible for Chapter 7?
Filing for Chapter 7 bankruptcy relief requires that you turn over all nonexempt property to a trustee. The trustee will then sell the property and use the proceeds to pay down your creditors. Once the court filing fees are paid, a bankruptcy judge will discharge your debts — assuming, of course, that you’re eligible. Eligibility depends on a number of factors, including whether or not you’ve:
- Filed for Chapter 7 bankruptcy relief within the past eight years;
- Filed for Chapter 13 bankruptcy relief within the past four years;
- Engaged in misconduct and/or fraud concerning the details of your bankruptcy or financial situation;
- Refused to comply with court orders related to your bankruptcy;
- Refused to answer questions in court regarding your bankruptcy;
- Failed the financial means test required for declaring bankruptcy.
Whether you are considering bankruptcy or trying to decide between Chapter 7 and Chapter 13, it is in your best interest to speak with a qualified bankruptcy attorney as soon as possible to assess your situation.