Long Island Bankruptcy: What is the Difference Between Chapter 7 and Chapter 13?

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Filing for bankruptcy can provide the financial relief you need from debts that you cannot pay. However, there are different chapters of the bankruptcy code that consumers can file under. Before you make the choice to declare bankruptcy, you need to understand the options available to you and make an informed choice about how you can best deal with your debts. A Long Island bankruptcy lawyer can help you to understand the key differences between chapter 7 and chapter 13 so you can choose the option that is right for you.
Chapter 7 vs. Chapter 13
There are several important and fundamental differences between Chapter 7 and Chapter 13 bankruptcy:

  • Chapter 7 requires you to have very limited income to be eligible to file, while Chapter 13 is considered a “wage-earner’s” bankruptcy. To file chapter 7, your income must be below the median in your state or you must pass a means test showing you don’t have disposable income to pay debts after your required expenses are paid.  Chapter 13 does not have this maximum income limitation.
  • Chapter 7 requires the sale of certain assets, while Chapter 13 does not. When you file chapter 7, assets not considered “exempt” can become part of the bankruptcy estate. The assets are sold or seized and the money is used to repay creditors at least some of what they are owed. When you file for Chapter 13, this process does not occur and you can keep your money and possessions.
  • Chapter 7 is “liquidation” bankruptcy, while Chapter 13 requires a repayment plan. When you file chapter 7, any remaining balances on eligible debts are discharged after creditors are repaid from the sale of assets. With a Chapter 13 filing, on the other hand, you must create a three to five year repayment plan and creditors must agree to the plan. At the end of the bankruptcy, your remaining balance will be discharged on debts not fully repaid under the repayment plan.

While these are the most important fundamental differences between Chapter 7 and Chapter 13 bankruptcy, there may be other important distinctions as well. For example, Chapter 13 can make it possible for some second-mortgage or other non-primary mortgage debt to be reclassified as unsecured debt. This can make it easier for you to keep your home. No such corresponding option is available in a Chapter 7 filing, although you can generally keep your house after filing Chapter 7 bankruptcy as long as you get current on the loan and reaffirm that you will pay the mortgage debt.
Because of the important differences between Chapter 7 and Chapter 13 bankruptcy, you need to make a smart choice as to which option is best for you.  For more than 25 years, the Law Offices of Robert D. Weiss, P.C. has represented debtors facing bankruptcy in Long Island,Suffolk and Nassau Counties. Call today to speak with a member of our legal team and learn how we can help guide you through your bankruptcy from start to end.

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