One of the most commonly asked questions regarding bankruptcy surrounds
the similarities and differences between Chapter 7 and Chapter 13 bankruptcy.
While these two plans are both methods for a person to eliminate their
debt and start fresh with their finances, the way they are completed and
the protections afforded by each are vastly different.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the most common and simplest type of bankruptcy
for individual consumers. Widely referred to as “liquidation bankruptcy,”
Chapter 7 bankruptcy involves selling off your non-exempt assets to pay
back as much of your debt as possible. While your bankruptcy trustee will
liquidate some of your assets to satisfy creditors, state and federal
exemptions allow you to protect certain assets during this process. Once
you have paid back as much as possible, any remaining debts will be permanently
Chapter 7 bankruptcy is a means-based privilege, meaning that it is only
available to those whose financial situations prevent them from being
able to afford a repayment plan. Qualifying for Chapter 7 bankruptcy involves
taking a “means test,” or a detailed analysis of your income and expenses. If your income
is less than the median or if your expenses are greater than your average
income, you will most often qualify for Chapter 7. If not, you may still
be able to pursue relief to your debt through a Chapter 13 bankruptcy filing.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is an alternative form of bankruptcy for those who
do not quality for Chapter 7. Unlike Chapter 7, Chapter 13 does not involve
liquidating your assets, but rather reorganizing your finances to repay
creditors over a period of three to five years. If you adhere to your
court-approved repayment plan as instructed, any remaining unsecured debts
that may remain will be discharged.
Both Chapter 7 and Chapter 13 offer the same protections from collection
efforts and foreclosures under automatic stay. Immediately upon filing
for bankruptcy, individuals are protected against the following:
- Wage garnishments
- Utility disconnections
It is important to note, however, that filing for bankruptcy oftentimes
cannot discharge debts such as
student loans, unpaid child or spousal support, overdue taxes, or pension loans. If
you are struggling with debt and are considering filing for bankruptcy,
it is best to discuss your situation with a legal professional to determine
the most appropriate course of action.
Bankruptcy Lawyer in New York
At the Law Office of Simon Goldenberg, PLLC, our
New York debt relief lawyer has helped countless clients overcome their difficult financial situations
and can help you get on the path towards a debt-free-future. Having earned
a 2015 Avvo Clients’ Choice Award and two Super Lawyers® inclusions
for our unparalleled advocacy, we can provide the strong legal guidance
you need during this difficult time.
Schedule a free consultation
or call (888) 301-0584 today to review your legal options.