Bankruptcy refers to a federal law that helps people or companies get out of debt. Individuals who need to file bankruptcy may qualify for either a Chapter 7 or Chapter 13. Both types of bankruptcy just refer to chapters, or sections, of the bankruptcy law.
If you’re overwhelmed with debt, you may want to know the difference between Chapter 7 and Chapter 13 bankruptcy before you decide how to file. The best option depends on your specific situation.
When to File Chapter 7 Bankruptcy
Chapter 7 bankruptcy forgives your debts without requiring you pay the balance. It also stops wage garnishment and creditor harassment.
Many people choose Chapter 7 bankruptcy when they are current on their home or car payments, but can’t possibly pay other types of debt. Those debts could include:
- Credit card debt
- Medical bills
- Utility bills
- Money owed on an apartment lease
- Payday loan debts
- And more
Chapter 7 has a lot of advantages. It frees you from debt very quickly, and it doesn’t come with a lot of obligation. But it also isn’t designed to protect your assets. That’s where Chapter 13 comes in.
When to File Chapter 13 Bankruptcy
Chapter 13 bankruptcy helps you get out of debt while still protecting your assets. It stops wage garnishment and creditor harassment, just like Chapter 7, and it also stops foreclosure and repossession.
Many people choose Chapter 13 when they have some income but are behind on their home or car payments. Because it has the force of federal law behind it, Chapter 13 instantly stops creditors from taking someone’s property.
During a Chapter 13, your attorney works with the courts and your creditors to set up a reasonable payment plan for your debts. They design it around your specific financial situation, so you can follow the plan without falling behind. At the end of your bankruptcy, you will be current on your home and your car will be paid off.
Deciding on the Right Type of Bankruptcy
As a Memphis bankruptcy attorney, I’ve found many clients don’t know exactly which type of bankruptcy they need until they speak with a bankruptcy lawyer. A qualified and experienced bankruptcy attorney will talk with you about exactly what debts you have and what your priorities are. They will help you figure out whether you qualify for each type and what you would need in order to file.
Look for an attorney with a free consultation who has experience with the type of bankruptcy that interests you. Make sure they don’t charge extra for complications that may come up.
And finally, whichever bankruptcy type you end up filing, remember both offer the chance to get a fresh start and rebuild your financial life. Chapter 7 and Chapter 13 have that in common, so don’t be afraid if one turns out to be better for you than the other.
Thanks to our friends and contributors from Darrell Castle and Associates, PLLC, a Memphis-based bankruptcy and personal injury law firm dedicated to helping people in the Mid-South get through hard times when they happen.