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How Do You Decide Between Chapter 7 and Chapter 13 Bankruptcy?

One of the most common questions we get on our phone lines is this: “What is the difference between a Chapter 7 and Chapter 13 bankruptcy?” The simple answer is that a Chapter 7 is the most common consumer level bankruptcy for unsecured debt, and Chapter 13 is a type of bankruptcy that involves a re-organization of your debt through a payment plan. As expected, this short answer usually requires additional information and is usually followed up with many more questions.

It is good to know the difference between a Chapter 7 and a Chapter 13, but it is more important to know which one you qualify for. Most people would like to think that they can choose between a Chapter 7 or a Chapter 13, but, in most cases, it would be good to see which one you qualify for first, and then find your best solution from there. Chapter 13 is generally designed to be a solution for people who do not qualify for Chapter 7 due to high income levels or the lack of insolvency. So, either you make too much money for a Chapter 7 or you have some expendable income at the end of each month in your current situation. So, as an example, if you have $500 of expendable income each month, but you still don’t have enough to pay off a $200,000 loan, then a Chapter 13 may be the best solution for you. If you have no expendable income and no steady flow of income that you can show proof of to the bankruptcy court, then you most likely will not qualify for a Chapter 13 plan.

A Chapter 13 does involve a repayment plan over a period of 3 to 5 years. The amount that you will be paying back to your creditors is dependent on what type of debt you owe and how much expendable income you have. It is a long term repayment plan that will not exceed 60 months. The bankruptcy trustee will approve the Chapter 13 plan and the debtor will need to make each monthly payment on-time to see the plan through to the end. If any payments are missed, the bankruptcy court will usually dismiss the Chapter 13 case.

What are the other major differences in Chapter 13? It is much more expensive than a Chapter 7. A Chapter 13 involves more information, investigation, and more time in planning a trustee re-payment plan. Don’t expect the same rates for a Chapter 13 that you would be paying for a Chapter 7 at any law firm. Bankruptcy Law Professionals Orange County Bankruptcy Attorneys and Riverside Bankruptcy Attorneys have extensive experience with both Chapter 13 and Chapter 7 bankruptcy filings. Even though bankruptcy code describes each type of bankruptcy in detail, interpretations of the bankruptcies can be different depending on the judge, the bankruptcy trustee, and the court system you are working with. Fortunately, we know all the ins and outs of working in both Riverside/San Bernardino County court system and Orange County’s court system. We know what the trustees require and we know where we can best help you.

If you are interested in scheduling an appointment at our Orange County or Riverside offices, please contact us at 855 257-7671.

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