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How do I choose between Chapter 7 and 13?

On Behalf of | Oct 7, 2020 | Bankruptcy

After making the decision to file bankruptcy, you will need to determine which chapter you wish to file. The most common options for individuals are Chapter 7 or Chapter 13.

According to FindLaw, you may not have to make this decision yourself because there is an income threshold to file Chapter 7. If you do not pass the means test, then you have no option to file under Chapter 7 and must file Chapter 13. Beyond that, you may want to consider how long the process will take and the effect it will have on your assets.

Time it takes

One thing to note is that a Chapter 7 bankruptcy will take far less time from start to finish than Chapter 13. Under Chapter 13, you have to create a repayment plan where you repay as much of your debts as possible. This plan will stretch over a number of years. Your bankruptcy is not complete until you complete your plan.

With Chapter 7, once you file, you will go to a meeting with the trustee, and that is the only thing you will do. About six months after filing, the court will discharge your case, and it will be complete.

Effect on assets

Another important point to note is that Chapter 7 is a liquidation. This means that the court will take your valuable assets and sell them for money to repay your debts. However, you will have exemptions you can claim to retain some of your assets, and if you do not have many assets or assets of a high value, you probably will not lose any of them.

With Chapter 13, you do not have to worry about losing assets as much. You can protect your assets better. If you have valuable assets that will not be exempt, then it could be more favorable to file under this chapter.