Chapter 13 Sacramento Bankruptcy Attorney serving Elk Grove discusses what factors to consider before deciding between Chapter 7 and Chapter 13 bankruptcy relief

Understand the Basic Differences between a Chapter 7 and Chapter 13 bankruptcy?

Most bankruptcies filed in the United States provide consumer debt relief and are governed by either Chapter 7 or Chapter 13 of the Bankruptcy Code.  Other forms of bankruptcy, such as Chapter 11 for corporations, and Chapter 12 for family farms, are not options for individuals whose primary debt overload consists of consumer debt – debt incurred “by an individual primarily for a personal, family or household purpose.”

However, Chapter 7 and Chapter 13 bankruptcies have several important differences:

• Chapter 7 bankruptcies seek to “wipe out” (liquidate) certain debts within a short period of time, usually within a time period of about four months.  After Chapter 7 bankruptcy is completed, an individual has a “clean slate” for the purpose of building up savings and improving credit rating.  Debts which were simply not payable under current circumstances have been discharged.  Now, with a fresh start, one can recommit to good spending and savings habits, and regain credit worthiness by demonstrating responsible ways of dealing with income, purchases, and debt repayment.
• Chapter 13 bankruptcies do not seek to wipe out debt, but aims to reduce some debts and work out a reasonable repayment plan for most outstanding debt, using a court approved 3 to 5 year repayment schedule.  This is referred to sometimes as a rehabilitation or reorganization plan.  However, in many Chapter 13 bankruptcy cases we are able to significantly reduce our client’s unsecured debt.
• Filing a Chapter 7 bankruptcy is considered to be better for people who have no major assets and little or no steady income.
• Chapter 13 repayment bankruptcy is designed for individuals who still have a steady income, and who have assets they would like to retain at the end of the repayment term.
• Chapter 7 bankruptcy can be quick, typically discharged within 4 months, after the court verifies the complete listing of assets, and that you do not have sufficient income to pay off a majority of his or her total outstanding debts within a 3 to 5 year repayment period.
• Chapter 13 bankruptcy takes time, the court or your bankruptcy trustee will be checking to see that your creditors get their payments during the repayment plan term.
• Chapter 7 bankruptcy ends all contact between you and your creditors, once your case is discharged, the listed creditors can make no further collection attempts with you ever, with the exception of those debts that you choose to re-affirm during your bankruptcy hearing, such as a re-affirmed car note or mortgage, in order to be able to retain the car or house.
• Chapter 13 bankruptcy takes you out of direct contact with you creditors.  You make monthly payments to your trustee, who then ensures that your creditors get timely disbursements from that payment, according to the repayment schedule approved by the court during your hearing.

In summary, you have various choices to make if you are considering filing bankruptcy.  Some of your choices will be determined by laws of the state where you reside.  Some choices will depend upon other factors, such as your income or the assets you want to retain.  But in all circumstances, it is good to seek professional consultation with a bankruptcy attorney prior to filing for Chapter 7 or Chapter 13 bankruptcy.  Even the timing of when you file can affect how much debt you can discharge and how many assets you can retain at the end of the process.

Please contact our Sacramento bankruptcy law office serving Elk Grove at 916-313-9069 or via email at info@california-bankruptcyattorney.com.