Chapter 7 vs Chapter 13 Bankruptcy: What’s the Difference?

Making the decision to file for bankruptcy is often a challenging and emotional process. To make matters worse, you may not fully understand the types of bankruptcy filing available, like Chapter 7 or Chapter 13 bankruptcy.

At Wright Family Law Group, we provide support and guidance to help our clients overcome this difficult time. Our experienced team can help you understand the distinctions between Chapter 7 and Chapter 13 bankruptcy and help you determine if one of these processes is a good option for you.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy because it allows the filer (known as the debtor) to discharge most, or possibly even all, of their debts. The process is overseen by a court-appointed trustee who assists in liquidating the debtor’s non-exempt property to repay creditors. However, exemptions often allow debtors to keep most or all of their property.

To qualify for Chapter 7 bankruptcy, debtors must meet strict income limits and adhere to specific rules. Enlisting the assistance of an experienced bankruptcy attorney can help avoid mistakes that may result in property loss or the inability to discharge certain debts.

Advantages & Disadvantages

Chapter 7 bankruptcy offers the potential for a fresh start, the discharge of most debts, and the ability to retain exempt property. It is quicker and less expensive compared to Chapter 13 bankruptcy. However, it may not be accessible to individuals with higher incomes. Furthermore, certain debts, such as student loans and child support, are typically not dischargeable through Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy serves as an alternative for those who do not qualify for Chapter 7 or have specific financial circumstances. It involves negotiating a repayment plan with creditors, allowing debtors to repay a smaller portion of their outstanding debts over three to five years.

Filing for Chapter 13 bankruptcy requires a regular source of income and disposable income to apply toward the repayment plan. The Bankruptcy Court must approve the plan, after which debtors can commence payments. Chapter 13 bankruptcy is suitable for many individuals with valuable non-exempt assets or those who do not qualify for Chapter 7 due to their income.

Advantages & Disadvantages

Chapter 13 bankruptcy provides the opportunity to retain valuable assets, such as a home, and catch up on missed mortgage or business payments. It offers a structured repayment plan and may allow debtors to pay back a smaller percentage of their unsecured debts. It can also halt foreclosure proceedings and provide a path to negotiate a home loan modification. However, the process is longer compared to Chapter 7. Debtors must commit to a repayment plan for several years, which may require strict budgeting. Additionally, not all debts may be dischargeable, and debtors must have a regular source of income to qualify.

Guidance for Bankruptcy Issues in Massachusetts

At Wright Family Law Group, the complexities of bankruptcy law are well understood. Our firm regularly assists clients with filing for Chapter 7 or Chapter 13 bankruptcy. Whether you need a fresh start through Chapter 7 or the option to retain assets through Chapter 13, experienced attorneys are ready to guide you through the process and help you achieve financial freedom. Contact Wright Family Law Group today for a consultation and take the first step toward a brighter financial future.