Chapter 7 vs Chapter 13 Bankruptcy Which Is Right for You
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Chapter 7 vs Chapter 13 Bankruptcy: Finding Your Path to Financial Freedom
Key Differences at a Glance
| Chapter 7 Bankruptcy | Chapter 13 Bankruptcy | |
| Best For | Those with limited income | Those with regular income |
| Process | Liquidation of non-exempt assets | 3-5 year repayment plan |
| Timeline | 3-6 months | 3-5 years |
| Asset Protection | Lose non-exempt property | Keep all your property |
| Debt Discharge | Quick elimination of unsecured debt | Partial repayment of debts |
| Credit Impact | 10 years on credit report | 7 years on credit report |
Understanding Chapter 7: The Fresh Start Bankruptcy
Chapter 7 bankruptcy, which is also known as “liquidation,” is a fast way to get rid of most uninsured debts, like personal loans, credit cards, and medical bills.
How Does Chapter 7 Work?
- Your assets are looked at by a bankruptcy judge.
- Property that isn’t free can be sold to pay off debts.
- Most of the leftover debts are forgiven in full.
- Most of the time, the process takes 3 to 6 months.
When Chapter 7 Makes Sense:
- Your pay is enough to meet your needs.
- You mostly have unprotected debt.
- You don’t have many things that aren’t tax-exempt.
- You need to solve your debt problems quickly.
Understanding Chapter 13: The Reorganization Bankruptcy
Chapter 13 bankruptcy lets you make a court-approved payment plan that lets you pay off unprotected debts while you catch up on secured debts.
The way Chapter 13 works is:
- You want to pay it back over three to five years.
- Payments depend on how much money you have left over.
- You keep everything you own, like your house and car.
- Any remaining uninsured debt may be forgiven when the plan is over.
This is when Chapter 13 is better:
- You haven’t paid your mortgage or car bill on time.
- You have a steady income but need to restructure your debt.
- You want to protect things that aren’t exempt.
- You need to stop the sale or takeback of your home.
Key Factors in Your Bankruptcy Decision
1. The Means Test and Eligibility
The bankruptcy means test compares your income to California’s median income to see if you can file for Chapter 7. Chapter 13 may be your only choice if your income is too high.
2. Asset Protection Considerations
California’s exemption laws keep some goods safe when someone files for bankruptcy. When deciding between Chapters 7 and 13, it’s important to know what property you can keep.
3. Types of Debt You Owe
- Each chapter has its own rules about how to handle secured bills like mortgages and car loans.
- Special rules apply to bills that come first, like taxes and child support.
- Credit card and hospital bills are examples of unsecured debts that can be forgiven in full.
Special Situations That Affect Your Choice
Divorce and going bankrupt
Not able to get rid of child support or alimony in either chapter, but Chapter 13 may help with property settlement duties from your split.
Business Owners and Self-Employed
If you’ve shut down your business or owe money to it, Chapter 13 may be able to help you better handle your tax responsibilities and keep important business assets.
Tax Debt Solutions
Chapter 13 gives people with big tax debts strong tools to handle them through cheap payment plans that stop the IRS from trying to collect.
Why Choose Stewart Lim as Your Bankruptcy Attorney
With more than ten years of experience helping people in Long Beach with their money problems, I offer:
- Clear instructions on which part will really help you
- Expertise in California’s exemption rules and the courts in the state
- Individualized care, you work directly with me, not a junior agent
- Full help from the first filing to the final discharge
Don’t risk making the wrong choice because you don’t have all the facts. If you make the wrong choice, you could lose your home, your car, or get into too much debt.
Take the First Step Toward Financial Freedom
Make an appointment today for your free, private session. We will look at your unique situation and figure out the best way for you to start over.
Call 562-305-9101 now for your free case evaluation
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