Making The Right Bankruptcy Choice: 7 Or 13?

There are several code numbers that cover bankruptcy filings. Most consumers tend to file using either chapter 7 or 13 codes, however. These two chapters are excellent ways to get a better grip on your finances and reset the way you address debt, credit, and money in general. To help identify the major ways these two bankruptcy forms differ, read on, starting with the most popular way to eliminate debts.

Bankruptcy Chapter 7

If you have a great deal of unsecured debts like credit cards and medical debts, nothing beats a chapter 7 bankruptcy. All is not rosy with this form of bankruptcy, however. Take a look at the defining characteristics of a chapter 7 bankruptcy.

1. It's fast. Unlike chapter 13, a chapter 7 filing can be final in a matter of months.

2. It's efficient. Only this type of bankruptcy provides a true fresh start because it eliminates virtually 100% of your debts. The only type of debt it won't touch is federal taxes, student loan debt, and child support debts. Even those may be added to a bankruptcy if your case meets the standards.

3. It can mean a loss of property. Unfortunately, the downside to this form of filing can include the seizure and sale of personal property. The proceeds of such actions go to your creditors. That being said, exemptions allow chapter 7 filers to hang on to some or all of their property.

Bankruptcy Chapter 13

This form of bankruptcy is popular with filers who want to pay some of their debts but just need more time and consideration. Deals are formed with creditors so that interest, penalties, and fees are cut in return for a debt repayment plan. Any debt left at the end of the bankruptcy is forgiven. Here's more about chapter 13.

1. It allows well-to-do filers some relief. Unlike chapter 7, filers have no restrictions on income. With chapter 7, income cannot exceed the state's median without having to undergo what is known as means testing. With 13, income is irrelevant.

2. It takes longer. A chapter 13 reorganization plan can take many years to be complete. Since the debts of the filer can be paid using stretched-out payments, the time it takes varies.

3. No property is risked. For those with plenty of assets like vehicles, real estate, and more, chapter 13 involves no risk of losing anything.

4. It can look better on a credit report. Although the results are entirely anecdotal, some chapter 13 filers may encounter less negativity with this type of filing over a chapter 7. Legally, however, there should be no difference in the credit outlook. For more info, speak with a bankruptcy lawyer.